posted on
January 02, 2024
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With the current labour market data, what will be FED's next step?

While the Federal Reserve has managed to bring down inflation to 3.7% with its series of interest rate hikes, at present, the FED is facing challenging times as they are trying to determine if, the tight financial conditions are sufficient enough to manage #inflation.

The #labour market data plays an important role in determining if the economy is beginning to slowdown.

Let's look at the #LabourMarket Data:

  1. Unemployment Rate: Currently standing at 3.9%, the #unemployment rate is a significant economic indicator. The Federal Reserve aims to keep the #unemploymentrate at 3.8% in 2023.
  2. Non-Farm Payroll: The expected figure of 180k fell slightly short at 150k, following a strong data in the previous month with 336k new #jobs .
  3. Labor Market Dynamics: The labour market data is not coming in as strong as expected, posing potential challenges for the Fed. With more than 6.5 million people unemployed in October, the highest number since November 2021, the Fed anticipates an increase in unemployment to 4.1% in 2024 due to higher rates and labour market shortages.
  4. Average Weekly Hours The leading labour market indicator still suggests a tight labour market. However, if these numbers continue to deteriorate, it may affect unemployment figures, potentially impacting the Fed's 2024 expectations of 4.1%.

    While we can't definitively say that these numbers are worse and a #recession is near, but there are chances of the figures deteriorating in 2024.

    According to the '#Sahm Rule' coined by former Federal Reserve economist, Claudia Sahm, based on the unemployment report, if the rate of unemployment reaches 4% and beyond, it is considered a signal that an economic downturn is already underway.

  5. The FED’s reaction at the meeting: Last week at the FED press conference, Chairman Jerome Powell expressed uncertainty, stating, "We are not confident that we haven't, and we are not confident that we have."

    While Powell's mention of no imminent recession initially reassured the markets, we must remain vigilant as the situation evolves.

    6. A view at #spx:
    • The SPX support seems stable in the range of 4050-4070 levels, offering some respite, but I feel it will maintain its positions within this range for a while.
    • However, my in-depth analysis for the long-term is #bearish as only 25% of SPX stocks are above their 200-day Moving Average, with even fewer above the 50-day Moving Average.
    • As of now, the only lone sector displaying positivity is the Energy Sector.

As much as the FED wants to beat inflation and stabilize the economy, it doesn’t want unemployment to increase further. So, whether the FED will hike rates in the next meeting will all depend on the FED’s assessment of various factors that influence inflation.