What To Look At Next Week

We suspect the risk is on the upside, given the better weather, the improvement in the weekly jobless claims, and the anecdotal reports of more foot, auto, and air travel and restaurant bookings.

Fed Chair Powell has said essentially the same thing about the labor market, with a little less fanfare and drama than ECB President Lagarde's recent discussion of the holistic and multifaceted approach to financial conditions. In addition to job growth, he said the Fed looked at several metrics.

Consider the unemployment rate. It was at 6.7% in the last two months of 2020 and 6.2% in February. It is expected to have fallen to 6.0% in March. That would be the lowest since March 2020 (when it was at 4.4%). In the six months before the pandemic struck, the unemployment rate bounced between 3.5% and 3.6%.

The last time the Fed hiked rates was December 2018. The unemployment rate was 3.9%. Before the pandemic, it cut rates in July, September, and October 2019 when the unemployment rate was in its 3.5%-3.6% trough. However, the immediate threshold is not about raising rates, but when there is "substantial further progress" toward the Fed's goals to allow tapering.

Making some conservative assumptions, from the information set the Fed had at its March meeting to the mid-year meeting, another 1.1 million or more jobs would have been created, and the employment rate would maybe rest around 5.7%. Assuming no fresh setbacks, the vaccine will be available to most US adults by then, and a more vigorous opening of the economy is likely. By then, too, the most potent part of the base effect on inflation will be peaking.

In fact, in June 2020, the PCE deflator increased by 0.5%. The June 2021 figure will not be reported in time for the June FOMC meeting, but as last June's drops out of the year-over-year comparison, it may help ease the anxiety. At the same time, it reinforces the message from Fed officials that most of the rise is technical and temporary, which is essentially the same message from the ECB. Approaching maximum employment before the crisis did not spur intense price pressures.

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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