This afternoon, the minutes from the latest meeting of the Federal Open Market Committee (FOMC) from December 12-13 were released. These minutes give a more granular look at how the entire body of monetary policy decision makers are looking at the field ahead of them with tools in hand. And in this particular set of Fed minutes, it would appear there was a little something for everybody.
For those in the “Fed must reduce rates ASAP” camp, growing concerns among Fed members about “overly restrictive” interest rates were bandied about. The members are all convinced that the full impact of high rates — 5.25-5.50% since July 26th of last year — have not yet been felt. If there’s one sure way for the Fed to instigate an economic recession, it would be by keeping rates abnormally high for too long of a time.
On the other hand, an “unusually elevated degree of uncertainty” continues to create a haze over economic developments in 2024. A good example here would be the current housing market: demand for new and upgraded homes has apparently worn off the protective shield of historically high mortgage rates, and one of the first indicators that the Fed’s policy rates were having a desired effect — the housing market cooling off — shows signs of abating. Can the Fed responsibly start cutting rates if home prices assume their pricing trajectory from before they started hiking?
Looking at the FOMC meeting calendar for this year, everyone is currently skipping over the January 31 decision and looking toward March 20. In a 75-basis-point (bps) dot-plot for 2024, this would especially make sense considering we’re in an Election Year — it’s unlikely the Fed is going to want to seem biased in any way by delivering rate cuts at the September 18 meeting (the last one before the November 5 Election Day). This would then squeeze the moments of opportunity to the four meetings scheduled between March 20 and July 31.
As the Fed said, these moves will be heavily reliant on economic data. But if employment numbers remain healthy as of the May 1st meeting and into June 12th — with economic growth continuing elsewhere despite the high rate levels — then the Fed may be reticent to make a move, even when its current dot-plot suggests it should. And with market activity pivoting directly on how many cuts the Fed will make this year — will it just be 3? maybe it’ll be 6, or even 7! — we wouldn’t expect robust bullishness to prevail too far along under such a scenario.
In other news today, the Job Openings and Labor Turnover Survey (JOLTS) for November came out this morning, indicating an equal number of job openings from those expected, 8.8 million. This was expected to have been up month over month, but October’s figures have been revised up from 8.7 million openings to 8.9 million in this latest read. It’s still taking a while getting our nationwide labor market fully staffed.
For Job Quits in November, the 2.2% headline is 10 bps below where it had been the past few months. Yet in Leisure & Hospitality, food services in particular, were still north of 4% on new job quits. That said, food service quits are way down from the 5.8% we were seeing a year ago, so this is still firming up on a relative basis.
ISM Manufacturing for December performed slightly better than expected: 47.4%, versus expectations of 47.2% and 46.7% the previous month. As noted earlier, we’re still well below the 50% threshold on goods producing as of last month. Other manufacturing data elsewhere depicts some struggle as well; this is the sort of data the Fed is being careful not to crush through extensive 5 1/2% interest rates.
In any case, the market indices — especially the as-of-recently high-flying Russell 2000, which is down more than -5% from its 52-weeks highs set just last week — are down again today: the Dow -0.76%, -284 points; the S&P 500 -0.80%; the Nasdaq dropped a drastic -173 points, -1.18%; and the small-cap Russell a whopping -3.25%, just today.
For now, we can look at this as valuation trimming from an exuberant late 2023. There are possible snake pits to be wary of over time, and it is an Election Year (with some crazy notion that there may also be a federal government shutdown), so we can’t really be too certain of anything, but this early 2024 drop isn’t setting people’s hair on fire. Not yet, anyway.
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On Inflation Management and High Expectations
This afternoon, the minutes from the latest meeting of the Federal Open Market Committee (FOMC) from December 12-13 were released. These minutes give a more granular look at how the entire body of monetary policy decision makers are looking at the field ahead of them with tools in hand. And in this particular set of Fed minutes, it would appear there was a little something for everybody.
For those in the “Fed must reduce rates ASAP” camp, growing concerns among Fed members about “overly restrictive” interest rates were bandied about. The members are all convinced that the full impact of high rates — 5.25-5.50% since July 26th of last year — have not yet been felt. If there’s one sure way for the Fed to instigate an economic recession, it would be by keeping rates abnormally high for too long of a time.
On the other hand, an “unusually elevated degree of uncertainty” continues to create a haze over economic developments in 2024. A good example here would be the current housing market: demand for new and upgraded homes has apparently worn off the protective shield of historically high mortgage rates, and one of the first indicators that the Fed’s policy rates were having a desired effect — the housing market cooling off — shows signs of abating. Can the Fed responsibly start cutting rates if home prices assume their pricing trajectory from before they started hiking?
Looking at the FOMC meeting calendar for this year, everyone is currently skipping over the January 31 decision and looking toward March 20. In a 75-basis-point (bps) dot-plot for 2024, this would especially make sense considering we’re in an Election Year — it’s unlikely the Fed is going to want to seem biased in any way by delivering rate cuts at the September 18 meeting (the last one before the November 5 Election Day). This would then squeeze the moments of opportunity to the four meetings scheduled between March 20 and July 31.
As the Fed said, these moves will be heavily reliant on economic data. But if employment numbers remain healthy as of the May 1st meeting and into June 12th — with economic growth continuing elsewhere despite the high rate levels — then the Fed may be reticent to make a move, even when its current dot-plot suggests it should. And with market activity pivoting directly on how many cuts the Fed will make this year — will it just be 3? maybe it’ll be 6, or even 7! — we wouldn’t expect robust bullishness to prevail too far along under such a scenario.
In other news today, the Job Openings and Labor Turnover Survey (JOLTS) for November came out this morning, indicating an equal number of job openings from those expected, 8.8 million. This was expected to have been up month over month, but October’s figures have been revised up from 8.7 million openings to 8.9 million in this latest read. It’s still taking a while getting our nationwide labor market fully staffed.
For Job Quits in November, the 2.2% headline is 10 bps below where it had been the past few months. Yet in Leisure & Hospitality, food services in particular, were still north of 4% on new job quits. That said, food service quits are way down from the 5.8% we were seeing a year ago, so this is still firming up on a relative basis.
ISM Manufacturing for December performed slightly better than expected: 47.4%, versus expectations of 47.2% and 46.7% the previous month. As noted earlier, we’re still well below the 50% threshold on goods producing as of last month. Other manufacturing data elsewhere depicts some struggle as well; this is the sort of data the Fed is being careful not to crush through extensive 5 1/2% interest rates.
In any case, the market indices — especially the as-of-recently high-flying Russell 2000, which is down more than -5% from its 52-weeks highs set just last week — are down again today: the Dow -0.76%, -284 points; the S&P 500 -0.80%; the Nasdaq dropped a drastic -173 points, -1.18%; and the small-cap Russell a whopping -3.25%, just today.
For now, we can look at this as valuation trimming from an exuberant late 2023. There are possible snake pits to be wary of over time, and it is an Election Year (with some crazy notion that there may also be a federal government shutdown), so we can’t really be too certain of anything, but this early 2024 drop isn’t setting people’s hair on fire. Not yet, anyway.
Questions or comments about this article and/or author? Click here>>