High Frequency Economics: Still see 2 rate cuts this year after April jobs report

I wish you’d read all the numbers on the payrolls. I mean, you cited the slowdown to 175, but you didn’t mention that in the previous report for March, we were at 3:15 and the average of the two months was 245,000 jobs. There’s nothing wrong with that. And if you go back to the two months before that, you look at January and February, the numbers were 2:36 and 2:56. That average is 246, almost exactly the same number. And you go back to November and December and the average of those two months was 290 and 182 averages to 2:36, almost the same number. In other words, with ups and downs along the way, the payroll numbers still considered still still continue to be showing increases in jobs that are quite strong. I think that it’s premature to run off on the one number of 175 and say, Oh my gosh, it is down from the huge number that preceded. But the fact is that the labor market has been creating jobs at about 200 and 4200 and 50,000 jobs a month since last summer and this last number just doesn’t move the needle. As far as I’m concerned, the trend remains intact. Are you saying it’s premature then for the market to wrestle back another interest rate cut and price and effectively two rate cuts now for this year? Yeah. Well, I think first of all, I think two rate cuts is the right number. You know, when we started the year and people were at six and seven rate cuts for the year, you know, that left us at high frequency economic scratching our heads. The dot plot told us that the Fed itself expected to do 2 rate cuts this year and that’s pretty much what we’re still expecting them to do. We see the economy slowing but not falling into recession. We think there’s a case for cutting rates to prevent real interest rates from rising to new, even record high levels as inflation slows. But we do expect inflation to continue to slow as the economy moves further and further, but only by a little bit, but incrementally away from full employment. We expect the Fed to to focus more on its second mandate to maintain full employment. So rate cuts to keep real rates from rising? Fine. Recession. No. Is this big number that we saw on Friday a disappointment? Not one. All It’s just noise along a constant path of job creation and a strong economy. Yeah. Mr. Weinberg, I completely agree with you about the people going off to the races on one bit of data. They didn’t even remember the fact that we had the ECI index, which is actually a couple of days earlier, showing a stunningly robust picture as well. Here’s a point. Monday, Barking and Williams. Tuesday, Kashkari, Jefferson, Collins, Cook. Friday, Bowman, Logan, They’re all speaking this week. What on earth are they going to say that’s actually meaningful? Because once again, Carl, we’ve got this play by play commentary from the Federal Reserve voters and non voters. I just can’t think why the market would hang on to every word. But it will. Well, they’re not going to get a lot to hang on, most likely. It’s unlikely that any of these Fed speakers are going to deviate from the script that Jay Powell laid out last week and before that at the IMF meeting and in other interviews in between. You know, the Fed is not yet convinced that the conditions are there to cut rates, but they feel that there are rate cuts in the future. And unless we get either convincing or until we get convincing evidence that inflation is clearly on its path back to 2%, which for the moment at least, is not yet there, or we get signs of a recession, there are no rush to cut rates, nor should they be, Steve. I mean, my goodness, the economy’s running at full employment. It’s this in inflating at full employment, wages are slowing. Everyone who wants a job has a job, and we’re growing at close to potential. All right, it’s not really broken. It doesn’t really need to be fixed. They have no real immediate mandate to move, and they’re taking advantage of that to be sure that they don’t make a mistake. That’s good policy making, Carl. The other thing which we’ve got to guess talking about a little bit later on as well and I’m sure you concur, is that the actual neutral rate is going up all the time to the highest level in decades as well. Where do you see the neutral rate at the moment? I’ve seen a 4% figure mentioned for the first time this week. Well the the neutral rate is supposed to be our star is supposed to roughly be the the potential growth rate of the economy and right now we’re at full employment. So our growth is constrained. You know we only way we can create new jobs is to increase productivity or to get more people working or through immigration and none of those things are going to happen very quickly. Otherwise we are going to exhaust the labor force. We’re almost at full employment. So our star right now I think should be closer to the 2% figure, which is roughly the sum of what the population is. Carl, I wanted to pick up on money supply. I was looking at some data suggesting that you know M2, it’s falling year over year, but for the for 16 months we’re right back to data we’ve not seen since 1960. Why is this not working when it comes to the economy? Why is the the tightness of money not having an impact on inflation? Oh, you know, I think money, money is what they should be looking at. I’m, I’m embarrassed to say that both our central bank and yours and all the central banks in the world are hardly looking at money supply at all. Right. We increased the money supply in the United States by 35% in the early months of the pandemic and what did we get? We got an increase in prices. There’s no surprise in that. That’s Econ One O 1. And now that the money supply has has peaked and it’s starting to come down because of QT and the real money supply is being deflated by higher levels of prices where we’re getting back to where we ought to be and prices are leveling off at a new higher level. I mean Econ 101 says it’s going to work. You just have to be patient. It doesn’t always work in the time frame that the market expects, but it is going to work.