Blowout jobs data suggests the Fed overreacted with its jumbo rate cut
Phil Rosen
Co-founder & Editor-in-Chief of Opening Bell Daily ? Founder of Journalists Club ? 2x Author ? Prev: Fulbright, Business Insider
Good morning! After a stronger-than-expected September jobs report Friday, each of the benchmark stock indexes eked out weekly gains:
- S&P 500: +0.2%
- Nasdaq Composite: +0.1%
- Dow Jones Industrial Average: +0.1%
Today’s edition unpacks whether the Federal Reserve panicked in making a half-point rate cut in September.
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Did the Fed really have to go jumbo?
The US economy continues to hum at a stronger clip than many people expect, which raises the question as to whether the Fed made the right call going with a jumbo rate cut.
Employers added 254,000 jobs in September, according to the Labor Department’s initial count —?the most since the start of the year.
It also revised July and August numbers higher by a total of 72,000 jobs.
Plus, unemployment dipped slightly to 4.1%.
To be sure, a large share of new jobs are government jobs, and recent history suggests a downward revision will come at some point soon.
That said, the economy looks to be in good shape and a range of recent data suggests the Fed could have opted for a smaller, 25-basis-point move in September.
Gene Goldman, CFA , chief investment officer for Cetera Investment Management, has been saying for some time that the Fed did not need to be so bold with its first cut.
“The move by the Fed to aggressively cut rates has added a new risk that I believe becomes the biggest — or papa bear risk — to this goldilocks economy,” Goldman told me. “[That] the Fed cut rates too much, too fast.”
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To that point, following Friday’s?data, Bank of America analysts changed their call for the November Fed meeting.
They now expect policymakers to cut rates by 25 basis points, rather than 50.
“The data flow since the Fed's decision to cut by 50bp in September has been remarkably positive, raising the question of whether the super-sized cut was warranted,” BofA’s Aditya Bhave wrote in a note to clients.
And gangbusters jobs report aside, it was only a week ago that GDP and GDI were revised substantially higher.
The Morgan Stanley team, meanwhile called the jobs report “resoundingly strong” and Goldman Sachs said the data have “reset the labor market narrative” and quelled fears.
Elyse A. usenbaugh, JPMorgan Wealth Management’s head of investment strategy, said the US now looks even closer to a soft landing.
Markets seem to agree.
As of Sunday evening, CME data showed about 97% odds for a 25-basis-point rate cut in November.
One week prior, that stood at about 50%.
“The bottom line here is that a resilient labor market is continuing to support consumers and the Fed is cutting rates,” said JPMorgan’s Ausenbaugh. “Historically, that has been an environment conducive to the outperformance of stocks and bonds over cash."
Feedback or thoughts? Leave a comment below.
Senior SEO-SEM Marketing Manager-Data and Web Analyst
4 个月What blowout jobs data? 77% of new jobs were either government or low wage service sector jobs. And many of those low wage service jobs are likely to "revised" and disappear in the next 60 days. We know food service companies are now reducing full time positions and thus the same worker is now taking on 2-3 part jobs to compensate.
Head of Business and operations at 5WH & New India Abroad | Expertise in Digital Marketing, Lead Generation, Google Analytics, Email marketing, Zoho tools, Google Workspace and Performance Marketing
4 个月The Fed's aggressive rate cut might be a gamble. While the recent job growth is encouraging, it's important to consider other economic indicators and the long-term implications of this move. A more cautious approach with a smaller rate cut could have been a safer bet. Overcutting rates can create new risks and potentially destabilize the economy. It's crucial to monitor the situation closely and be prepared for potential adjustments in the future." #Fed #interest rates #economy #jobmarket #financial markets
Important inflation data to watch this week as well.
Self Employed Independent Financial Consultant-Writer of The Macro Butler Substack
4 个月Phil Rosen As central bank masquerades and the war cycle reach unhinged levels; the upcoming reflation will inevitably lead to a rotation that accelerates the rotting process of the Magnificent 7. https://themacrobutler.substack.com/p/reflation-rotation-and-a-rotting