Waller’s gone soft
October 15, 2024
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–Waller’s speech yesterday pretty much describes no landing or a soft landing. Job market coming into better balance. Wage growth decent. but perhaps not inflationary with productivity growth as an offset. Summary:
With the labor market in rough balance, employment near its maximum level, and inflation generally running close to our target over the past several months, I want to do what I can as a policymaker to keep the economy on this path. For me, the central question is how much and how fast to reduce the target for the federal funds rate, which I believe is currently set at a restrictive level.
On the next employment report:
I will be looking for more evidence to support this outlook in the weeks and months to come. But, unfortunately, it won’t be easy to interpret the October jobs report to be released just before the next FOMC meeting. This report will most likely show a significant but temporary loss of jobs from the two recent hurricanes and the strike at Boeing. I expect these factors may reduce employment growth by more than 100,000 this month, and there may be a small effect on the unemployment rate, but I’m not sure it will be that visible. Since the jobs report will come during the usual blackout period for policymakers commenting on the economy, you won’t have any of us trying to put this low reading into perspective, though I hope others will.
Finally:
I view the totality of the data as saying monetary policy should proceed with more caution on the pace of rate cuts than was needed at the September meeting.
https://www.federalreserve.gov/newsevents/speech/waller20241014a.htm
–On Oct 10 CLX settled 75.85. This morning it’s nearing $70 bbl given headlines like this:
Netanyahu Vows He Won’t Strike Iranian Oil Or Nuclear Targets
–After trading as low yesterday morning at 119-14 (on light volume) USZ is up nearly a point this morning from yesterday’s settle of 119-25; currently 120-23.
–Here’s a snippet from the Cass Freight report. Perhaps a bit more downbeat than Waller:
Thanks to the rising spot market, truckload linehaul rates (a mix of contract and spot) saw a change in direction in September after four straight monthly declines. We saw a 0.3% m/m increase in this index. Compared to last year, linehaul rates are down more than 3%. Shipment volumes as measured by the Cass Freight Index fell 1.7% from August, after a 1.0% increase in August, and were down 5.2% y/y.
Yesterday I saw someone mention that Financial Conditions are easier now than they were before the Fed started hiking. Clearly stocks have exploded, but I have included other factors:
Dudley’s FINANCIAL CONDITIONS
For what it’s worth. Financial conditions are generally tighter now with respect to start of the hike cycle
However, long-end yields are well off their highs.
DXY marginally tighter. Again, well off highs
Stocks and BBB spread looser, but CCC marginally tighter
First hike March 16, 2022
1) Short rates.
Front SOFR contract
End 2021 9973 or 27 bps
End Mar’22 9866 or 1.34%
Now 9565 or 4.35%
tighter
1-yr t-bill
End 2021 38 bps
End Mar’22 1.61%
Oct’23 high 5.50%
Now 4.19%
tighter
2) Long rates
GT10 / 10y treasury
End 2021 1.51%
End Mar’22 2.35%
Oct’23 high 4.99%
Now 4.10%
tighter
GT30
End 2021 1.90%
End Mar’22 2.48%
Oct’23 high 5.11%
Now 4.41%
tighter
3) Value of USD
DXY
End 2021 95.67
End Mar’22 98.40
Sept’22 high 114.10
Now 103.19
tighter
4) Equities
SPX
End 2021 4779
End Mar’22 4631
Now HIGH 5815
looser
5) Corp spreads
BBB/Baa spread
End 2021 121 bps
End Mar’22 157 bps
Oct ’22 high 228 bps
Now 112 bps
looser
CCC & lower spread
End 2021 678 bps
End Mar’22 729 bps
Sept’22 high 1281 bps
Now 790 bps
tighter
