BLS unemployment data, chart by Mish

Pushing Back, Full Speed Ahead, or Something Else?

Bloomberg reports Fed Officials Seen as Likely to Push Back Against Half-Point Cut

• “We’d never want to overreact to any one month’s numbers,” Chicago Fed President Austan Goolsbee said in an interview with Bloomberg Television’s Michael McKee and Sonali Basak.
• “Given Fed officials’ hawkish bias, I would anticipate this seals the deal for a September cut, but there will be resistance to a 50-basis-point cut,” said Gregory Daco, chief economist for Ernst & Young LLP.
• Richmond Fed President Thomas Barkin, in an interview with the New York Times, also leaned away from the notion that any cut exceeding a quarter percentage point would be appropriate.
• “There have to be a few members of the FOMC who believe that they are now behind the curve on policy, although the majority still seem to favor a cautious approach,” said Kathy Jones, chief fixed-income strategist at Charles Schwab. “If the economic data continue to be weak, then a 50 basis-point cut is possible.”

Something Else

The Fed would be wise to do nothing other than say they will look at the data.

If that’s a pushback, then OK, it’s a pushback, but I don’t define it that way.

A pushback to me would be statements to the effect the economy is strong coupled with statements that 25 basis points is enough.

The next meeting is September 18. Between now and the 18th there will be a slew of economic reports.

BLS Economic Data Schedule

• CPI: August 14
• QCEW Quarterly Jobs: August 21
• Employment (Jobs) Report: September 6
• CPI: September 11

That is just the BLS schedule. We also have pending retail sales reports, new home sales reports, construction reports, revised GDP reports, etc.

The Fed should not say anything until at least the next CPI report on August 14.

That’s not realistic. So expect a “wait and see” instead of a stronger pushback. The Fed is likely to mention the length of time and additional data reports coming in.

My Expectation

Kathy Jones at Schaub says “If the economic data continue to be weak, then a 50 basis-point cut is possible.”

I suggest if the data is weak enough, a 50 basis point cut is a given. And I do expect that to be the case.

Data is weakening fast. The Fed probably realizes that now but it will not want to take a stance either way.

In the short term, the Fed’s aim should be to say as little as possible to avoid being wrong one way or another. By that rationale, the Fed won’t want a strong pushback against 50 basis points then have the data suggest that is what they need to do.

And if all hell breaks loose, the Fed sure will not want to call an emergency meeting in October. That in and of itself may prompt the Fed to do 50 basis point in September.

All Hell Breaks Loose

On July 25, I commented “All Hell Breaks Loose” In the Next Few Months as Recession Bites

Two of us are still adamant that a recession has started. The other is Danielle DiMartino Booth, in her best video yet. Please take a look.

Since then, we have indeed seen a fast start to all hell breaking loose.

July 31: Small Business Employment Growth Is Now Negative (and What It Means)

ADP data shows year-over-year payroll growth is negative 88,000 for small corporations sized 20-49. Trends are negative in all but very large corporations.

August 1: The Manufacturing ISM Index Is Lower Than Every Economist’s Estimate

The ISM manufacturing report was a disaster from every angle, especially employment , production, and backlogs. Employment reading worst since June 2020.

August 1: Commercial Construction Spending Is Down 9 Consecutive Months

Here’s the kicker: It’s not office related. And the Census Department has heavy negative revisions to spending. Let’s investigate.

August 1: Intel Announces 15,000 Job Cuts, 15 Percent of its Workforce

Intel received $8.5 billion in Biden administration grants (Inflation Reduction Act) but announces massive layoffs and halts dividends due to a decline in revenue.

August 2: Unemployment Rate Jumps, Jobs Rise Only 114,000 with More Negative Revisions

The headline jobs number was much weaker than the consensus estimate of 180,000 and the unemployment rate rose 0.2 percentage points.

August 2: The McKelvey (Sahm) Unemployment Rate Recession Rule Just Triggered

A recession indicator based off rising unemployment triggered in July. Claudia Sahm, a former Fed economist, takes credit for an indicator she did not invent. Let’s discuss.

Weakening data explains the recession call. The Yield Curve Action provides a confirmation signal.

All hell has already broken loose. And this is just the start of it.

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