The July employment report showed that the economy generated 187,000 jobs in the period versus consensus expectation of 200,000 while recording a downward revision to the two prior months totaling 49,000. Wage growth as shown by average hourly earnings remained solid for the month – indicating that the slowdown in hiring is a reflection of a tight labor supply. Two Fed officials spoke post the non-farm payroll report and both indicated that the path of employment and inflation were heading in the right direction and that dialogue may shift from whether to raise rates to how long do rates need to remain at the current level. Bond prices rose in a relief rally, removing the past week’s rise in the yields in 2yr and 5 yr Notes.

The economic data this week was decidedly mixed, casting some doubt on the Fed’s likelihood to raise the overnight rate at the upcoming FOMC meeting. The June Retail Sales report came in at 0.2% month-over-month, well below the 0.5% expectation. But that number was pulled lower by a dip in gasoline prices and building materials. Looking past the headline to what the BLS calls the control group, the section more attuned to the consumers propensity to spend, the report told an entirely different story. For the month the control group spending increased 0.6%, led by online shopping. Moreover, the May retail sales results were revised higher from 0.3% to 0.5%, fortifying Chairman Powell’s message that monetary policy is not tight enough.

Bond and stock prices rallied sharply this week, but the biggest news came on Wednesday when the Securities and Exchange Commission amended the rules by which money market funds operate. It was the third time in 15 years that the SEC changed money fund rules. The moves are designed to prevent panicky investors from pulling money during times of market stress such as those witnessed in 2008 and 2020. Our take is that they make money market funds even less attractive to investors. The specific changes are that funds would impose a fee of up to 2% when net daily redemption exceed 5%; the funds are now required to hold 25% of the assets under management in overnight holdings, up from the previous mandate of 10%; and the funds will be required to hold 50% of assets in holdings that mature in one week, up from 30%. Funds have 18 months to become compliant with the rules.

Chairman Powell must have re-watched the May 3rd post-FOMC press conference and not liked what he saw. Recall that he was called out by CNBC’s Steve Liesman for his tepid answer when questioned about his knowledge of the issues surrounding Silicon Valley Bank. His demeanor at the Wednesday conference was quite the opposite. His first words, delivered in a forceful tone were “My colleagues and I remain squarely focused on our dual mandate…”, as if daring any of the reporters to assume otherwise.