Why the Fed wants a hiring freeze in America: Morning Brief
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The chorus of those who want a weaker job market is getting louder.
After the latest job numbers were announced last week, Bank of America analysts said in a note that they “support the home team” and hope the numbers stop being too strong. Since higher wages contribute to inflation, the Fed seems to agree.
“President Powell continues to point out the relationship between a high level of employment and wage/price inflation,” DataTrek co-founder Nicholas Colas wrote in a Tuesday newsletter. He is not talking to investors. He’s talking to American companies, and his goal is to basically get companies to freeze hiring and end the pay cycle for new hires.”
The Consumer Price Economics Statement (CPI) released on Wednesday showed that inflation rose more slowly in April (8.3%) than in March (8.5%). While the report was expected to show the peak of March, there was not much good news.
“[Substantial] Reductions in the annual rate of inflation are unlikely to materialize until there are significant improvements in geopolitical tensions (which would lead to lower energy prices), supply chain and labor market shortages,” ING’s James Knightley wrote in a note after the release. ” There is no indication that any of this will happen anytime soon.”
TD Securities analysts agreed, noting that “the report should be a concern for the Fed given that price gains in the core sector appear to be spreading.”
According to economists and analysts, shocks to commodities, supply chain issues, and a hot (and extremely tight) labor market all make inflation high and unpleasant. But the job market seems hard to beat.
While supply chain problems and significant price shocks subside, “we don’t see such a slowdown when it comes to labor cost pressures,” noted Bank of America global economist Ethan S. Harris. Employers cannot find people to fill the vacant positions, a large number of people are changing jobs, and “looking into the future, there is no sign of stabilization.”
In Kollas’ view, the only way to stabilize inflation is to use the hammer of monetary policy to hit stock prices.
“The Fed’s goal is to persuade American companies to freeze short-term hiring, and it will continue to raise interest rates and talk about aggressive monetary policy until that happens,” Colas wrote. “Low stock prices are his way of convincing C-suites and boards of directors to do so.”
The ‘blunt power tool of price policy’ used by the Federal Reserve
Powell focused on the ratio between vacant jobs versus the unemployed and the core PCE price index, which measures inflation.
“President Powell mentioned the ratio several times in last Wednesday’s press conference,” said Colas, who said job vacancies should drop from 11.5 million to about 8 million for things to return to normal.
The only way to get there would be some kind of freeze from the companies.
“[Freezes] Usually [happen] When C-Wings and Councils decide business conditions have become too uncertain. “The Fed has no seat in those discussions, but it does have the tool of the hard power of price policy and its effect on stock prices,” Colas said. President Powell has made it clear that he wants to see editorials back down.
The big question is to what extent – and will it be enough to get the “R” out?
Harris wrote that if strength remains at the 200,000 jobs in the month we saw, “the Fed will need to drive job growth to roughly 25,000 per month.”
But, Harris added, “If the labor force slows to 100,000 like the trend, they will need to push job growth to negative 70,000. That is, they will need to create a mild recession.”
What are you watching today
8:30 a.m. ET: Producer Price IndexMoM, Apr (0.5% expected, 1.4% in March)
8:30 a.m. ET: Producer price index excluding food and energyMoM, Apr (0.6% expected, 1.0% in March)
8:30 a.m. ET: Producer price index excluding food, energy and tradeMoM, Apr (0.6% expected, 1.0% in March)
8:30 a.m. ET: Producer Price IndexYoY, Apr (10.7% expected, Mar 11.2% expected)
8:30 a.m. ET: Producer price index excluding food and energyYoY, Apr (8.9% expected, 9.2% in March)
8:30 a.m. ET: Producer price index excluding food, energy and tradey/y, Apr (6.5% expected, 7.0% in March)
8:30 a.m. ET: Unemployment Complaint Ratesweek ending May 7 (expect 192,000, 200,000 over the previous week)
8:30 a.m. ET: Ongoing Claimsweek ending April 30 (1.368 million expected, 1.384 million over the previous week)
Before being put on the market
WeWork (WE) is expected to post an adjusted loss of $0.72 per share on revenue of $768 million
Six Flags Entertainment (SIX) is expected to post an adjusted loss of $1.04 per share on revenue of $122.54 million
Confirms (AFRM) is expected to post an adjusted loss of $0.48 per share on revenue of $344.33 million
Figs Inc. (FIGS) is expected to post adjusted earnings of $0.06 per share on revenue of $117.33 million.
Toast Inc. (TOST) is expected to post an adjusted loss of $0.16 per share on revenue of $491.94 million
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