Fed's June pause is going to be a mistake: Economist

well we've got some strong employment data today ahead of tomorrow's jobs report you mentioned ADP let's dive more into that adp's National Employment report saw private sector employment Jump by 497 000 jobs in June that's way above the 222 or the 220 000 estimates with most of the jobs added in services like Leisure and Hospitality the report also saw annual pay increasing 6.4 percent year over year meanwhile there were 248 000 jobless claims during the week ending July 1st close to a two-year high with most of the increases popping up in just a few States including Michigan and New York which could be due to annual summer retooling at Auto plants the rise in claims don't point to a major pullback in the labor market in fact the four-week moving average of claims dropped by 3500 and that came in at 253 250. our next guest says that we could be at the risk of the FED fund rate climbing to 7 percent uh climbing to seven percent to eight percent perhaps if the labor market doesn't slow down joining us now we've got Chris rupke who is the forward bonds Chief Economist Chris help us break that down even more because that that is well above what many have looked at as the the terminal rate for the Fed well I if you go back in history uh back to 1989 and uh the the FED funds rate was 10 percent to slow the economy uh before the stock market bubble in 2000 the FED funds rate was six and a half percent so right now our inflation is worse than it was in 2000 and it's worse than it was in 1989 so I I just feel I've seen this story before it was a long long time ago was in the 80s the Federal Reserve back in the 80s found it difficult to get the FED funds rate high enough to slow activity because it's kind of hard to judge what the public thinks is restrictive policy and you get some confusion about nominal rates versus real rates so if inflation's running about five percent maybe the FED funds rate interest rate should be a good 200 basis points above that which would put it at seven percent uh I hope that's not the case because I own a lot of Treasury bonds at lower yields and it's going to incur some losses but um everything tells me that uh that pause they just did at the June meeting is going to turn out to be a mistake a quick uh Chris I want to quickly ask you about just your reaction to today's jobs data the job market has just continued to hold up I know the ADP report is private sector but you also had uh jobless claims uh continuing just to show some strength there what do you make of that data yeah I was a little bit shocked I guess ADP every once in a while needs to swing for the fences and get our attention back to their index I guess they're not selling it but that was quite a dramatic number 497 uh you add in 50 000 government jobs uh that we saw in the payroll jobs number a month ago maybe we get another Blockbuster 550 000 increase tomorrow we've seen this before where some of the data the the day before the so-called most important economic number in the in the world the payroll jobs report sometimes the data the day before steals the Thunder of the actual jobs report tomorrow so I was shocked but it kind of tells you that the labor Market's still strong uh there's been no uh real increase in layoffs despite some of those high profile layoffs that tech companies uh we see uh home prices at are at a new record level looking at the uh the data from Washington uh new home sales have picked up you know how could that be with a mortgage rate of 6.7 percent where you know a couple years ago the mortgage rate was three percent it's just telling me that interest rates aren't slow enough to uh to bring the economy to a stop which is pretty much what needs to happen to try and get inflation under control so uh durable goods orders they're at record highs none of this data looks like it should if the economy was slowing about the only thing that's slowing right now is consumer spending uh we had a big jump in January and since that point in time we haven't really seen that much more consumer spending but you know everything else looks like uh the economy is pretty good and oh Chris do we have you okay a discount uh 25 basis yep Chris it sounds like we still have you um if we can squeeze one more question in with you while connections are stable um we'd love to know how you would classify the consumer right now we've heard some companies talk about the consumer as as resilient or their spending is resilient and their their balance sheet the home is healthy how would you define the consumer in this environment well one thing I don't think they're overburdened by Consumer Credit I don't think they've taken on that much Consumer Credit I see the headlines saying their burdened but it's not that high yet uh to be burdened the other thing it's not just consumer confidence which was better earlier this uh the other week it's not just confidence it's not just the willingness of consumers to go to the shops and malls it's also how many uh consumers there are with paychecks so an important reason why consumer spending Falls in real terms than recessions is rising unemployment there's job losses people people don't spend because they can't they've lost their jobs so at this point we really haven't seen a lot of people lose their jobs yet so consumer spending it's it's a little bit slower but you know it's not going negative right now so we're we're not near a recession yet despite the yield curve forecasting a recession basically starting this month July all right Chris rupke we will have to leave it there for today we appreciate you for joining us Chris rupke Ford bonds Chief Economist thank you so much

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Id: CodAb95a6wY

Length: 6min 44sec (404 seconds)

Published: Thu Jul 06 2023