6/7/24 – Connect The Dots
The investment community, lately, had bought into the narrative that the economy is slowing, and that the Fed was about to reengage in the rate cut conversation. The May employment report, released this morning, fully took the air out of that notion. After April’s report came in below expectation, economists were expecting the number of new jobs created for the month would total 180,000, with the low estimate at 120,000 and the high at 259,000. The actual number blew past those forecasts with 272,000 new jobs created in the month. The report was a little messy in that the household report showed a contraction of -408,000 jobs and the labor force shrunk by -250,000 workers causing the unemployment rate to tick up to 4.0%. We advise to look past that uptick due to a few nuances between the household and the establishment survey. The bottom line is the June jobs report changes the soft-landing narrative and further postpones the likelihood of a rate cut anytime soon.
The consumer price index will be released next Wednesday morning, before the Federal Reserve releases its rate decision and the Chairman’s press conference. The expectation is CPI will rise 0.1% over April, and 3.4% over the prior year. The market is likely to be cheered by the monthly number, but we expect that the Fed will continue to be concerned by the year-over-year rate and that paired with the employment report will factor into their rate cut thinking.
When the Fed meets next week, they will face a conundrum with the DOT plot forecast. Currently the consensus forecast is for two rate cuts this year. Given the mess the committee made with last December’s call for an early rate cut, they’re likely going to be reluctant to change that forecast…but given recent economic data, they may. A July rate hike is certainly off-the-table, and with only three meetings left in the year, maintaining an expectation for rate cuts at two of the three meetings is making a statement on what they expect from the economy. We’ll be looking to the DOTS for clues on the committee’s thinking.
This commentary is being provided by Halyard Asset Management, L.L.C. and its affiliates (collectively “Halyard” or “we”) for informational and discussion purposes only and does not constitute, and should not be construed as, investment advice, or a recommendation with respect to the securities used, or an offer or solicitation, and is not the basis for any contract to purchase or sell any security, or other instrument, or for Halyard to enter into or arrange any type of transaction as a consequence of any information contained herein. Although the information herein has been obtained from public and private sources and data that we believe to be reliable, we make no representation as its accuracy or completeness. The views expressed herein represent the opinions of Halyard Asset Management, LLC, or any of its affiliates, and are not intended as a forecast or guarantee of future results. Past performance is not indicative of future results.
