E Is The Fed Wrong In Caring About Wages, Not Inflation?

This approach may be wrong, as we see from the GDP Now chart above, and the GDP Now retail inventory investment chart below, which shows a massive retraction in retail inventory investment. The economy could go either way and Duy acknowledges that, but he is concerned about the downside, not the upside of inflation. Real change in inventory investment has fallen off a cliff after an optimistic start in the latter half of 2018.

 

The Fed has an interesting dilemma. The GDP is slowing, but service jobs are exploding as reported by Trading Economics. Rates will be in neutral until GDP shows a pattern of consistent slowing. Trump won't get what he wishes for even though there are clear indications of slowing. Kudlow and Trump are likely getting this. Inventory build driving GDP to 3.2 percent growth is hardly an improvement of end demand for a very punished consumer. But bragging about a high number like that doesn't win POTUS and his adviser any sympathy if they believe things are weaker as to GDP. 

Here is the jobs report, which is strong, but GDP is still slowing in real time according to GDP Now.

 ADP Job Growth

 

Small business has a dim view of economic growth going forward so that sentiment matches GDP Now reporting. So does small business job creation which is slow.Here is small business sentiment, which has taken a hit and is lower for the 1st quarter:

Source
 

If the Fed lowers rates soon, it will be a real admission that they they were optimistic in raising rates in December, and were mistaken. The Fed does not like to admit they are mistaken. 

For further reading on GDP Now:

A GDP Now Chart Worth Watching

GDP Now (Explained)


 

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Disclosure: I have no financial interest in any companies or industries mentioned. I am not an investment counselor nor am I an attorney so my views are not to be considered investment ...

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Gary Anderson 1 year ago Author's comment

Update 3: The Fed clearly does not relish going toward the zero and negative rates. Normally it would be better to lower rates as a slowdown occurs, but these are not normal times. We are so close to zero that the Fed is reluctant to weaken banks heading into a probable recession.

Gary Anderson 1 year ago Author's comment

Update 2: Donald Trump wants lower wages. He also wants lower interest rates. But lower rates in a low inflationary environment could increase wages even faster!

Gary Anderson 1 year ago Author's comment

Update 1: Clearly the Fed is obsessed with pruning wages. I believe the Fed is more obsessed with pruning wages than it is in targeting inflation or NGDP targeting! See this for more proof of this Fed obsession: Fed's Andolfatto, Powell, and the Secret Goal of the Fed: talkmarkets.com/.../feds-andolfatto-powell-and-the-secret-goal-of-the-fed