The labor market set something of a record this week. For the first time since records have been kept (OK, the data only goes back to 2000, but cut us some slack here!), job openings in the U.S. exceed the number of unemployed workers. Bloomberg has a quick summary here.
This report coming on the heels of last Friday’s payrolls reports basically guarantees the Fed hikes next Wednesday by another quarter point. This will bring the Fed Funds rate to between 1.75% and 2.00%.
And there are more hikes to come. Tim Duy notes in his latest blog post:
“Incoming data on the manufacturing and services sectors as well as the job market continue to support a narrative of strong growth that will encourage the Federal Reserve in its campaign to push policy rates to the neutral level. Will they push beyond?” (emphasis is our own)
The market is looking for another hike on September 26th, but there is disagreement about a move in December. Some argue the Fed might take a wait and see approach after the September hike. Others, like Tim, think a strong economy and rising inflation will force their hand:
“Bottom Line: The data flow continues to speak to an economy that grows increasingly tight with each passing month. That will keep the Federal Reserve in play; they will not easily bring rate hikes to a halt with the economy marching forward and threatening to blow well past full-employment. But has the economy exceeded full employment? Maybe, and there is a chance that wages and prices are only lagging the rest of the data. If so, the second half of this year will get interesting if the Fed faces a combination of ongoing strong growth and actual inflation. To be sure, they won’t get nervous about a modest overshooting of their inflation target. But if they see inflation moving sustainably toward 2.5%, they will feel compelled to act by pushing rates past neutral.” (emphasis is our own)
If this scenario pans out, 2019 is going to get very interesting.
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