Focus on what the FED cares for: labor data
As I have discussed since the end of 2022, the Federal Reserve is more focused on labor data than on the growth rate of inflation in determining how many cuts it can deliver for the economy. In his comments at Wednesday’s press conference, Powell said that the labor market is strong and not requires tariff reductions.
However, Powell also emphasized the challenges with which unemployed Americans are confronted and the difficulty in getting a new job. Before Powell changed the game plan in 2022, making it more than inflation on the labor market, he noted that he would see the FED funds Mirror 3, 6 and 12 months PCE data. Well, if they served those figures, the rate of the Fed Funds would be almost 3%, because these are the most recent data:
- 3 months annually percentage: 2.7%
- Annual percentage of 6 months: 2.6%
- Core PCe of April PCE 12 months: 2.5%
- The head of the head of the head was 12 months at 2.1%
If the rates lead to increased prices and inflation approaches 3% as the Federal Reserve has indicated, it would assume that this is a one -off price increase, the reduction of the federal fund rate to around 3.5% still above the FED inflation objective. This percentage adjusts closely with the definition of some people of a neutral policy.
If the FED is waiting for the labor market to take action, this can be considered slow to respond again. Since the FED often quotes that their policy is moderately restrictive, they now comment that they seem to be good with the lack of recruitment today. Remember that the FED be noted before the year started that if the unemployment rate began to rise above 4.2%, they would worry, but Hoedzorg does not seem to be present today.
Between 2022 and 2024, the Fed had the flexibility to wait because the labor market did not broke. However, the space for maneuvering with regard to working conditions is no longer that wide. The openings of vacancies are no longer and the job growth is delayed to the extent that Powell admits that it will be difficult to find a job. Jobless claims, measured by a progressive average of four weeks, have risen to annual highlights and continuous claims are now at a highest highest point of three years.
The closer you get to Neutral with an inflation objective of 3%, the less catch -up the Fed may have to do when they wait to see that the labor market becomes weaker, as they did in 2024. Let us not forget that two meetings ago, Jerome Powell openly admitted that they were too late to lower the rates, because the labor data was weaker than they had realized. They played the data.
For the first time in many years, the labor data has been performing my prediction year to date. In my article about jobs on Friday I noticed that Powell should see real labor damage to cut in the direction of neutral policy. Now that the growth rate of 12 months of inflation is 2.1%, you can see why I have always focused on work on inflation.
Conclusion
My advice to Trump is to concentrate the discussion on the reductions of the FED rate on the labor market instead of interest costs. The Federal Reserve gives no priority to the interest rates in this way, and Americans may not resonate with that argument when it comes to budgeting.
Instead, Trump must emphasize Powell’s statement about the difficulty of finding jobs and emphasize the history of the FED to wait too long to respond to labor data in recent decades. This approach will frame the debate on the labor market and the challenges that American households are confronted with, which are more relevant to people’s daily lives than the issue of interest costs.
For those in the real estate and mortgage industry, remember that 65% -75% of the movement in the 10-year return and mortgage interest rate is powered by the FED policy, and therefore interest rates and cuts are being fed.
The people who work at the Fed are human and like all people, they can feel the pressure when a good, consistent message is discussed. For me, Americans can relate more to the labor data than the savings of interest costs and the FED will feel the pressure if the labor data becomes weaker.
