Is Powell’s ‘soft landing’ slipping away? Job worries cloud Jackson Hole speech
Jackson Hole, Wyoming, is known for its temperate summers, but Federal Reserve Chair Jerome Powell is probably feeling the heat turn up a bit ahead of his most-anticipated speech of the year. Powell will speak Friday, Aug. 23, at the Kansas City Fed’s annual economic symposium at Grand Teton National Park.
“This is his opportunity to send us a clear message on some aspect of what the Fed is thinking about,” Kathleen Hays, editor-in-chief of Central Bank Central, said. “I don’t think it’s going to be just looking at the economy and inflation. He’ll probably put this in a bigger context. At the same time, I think people are going to be waiting for him to just give us a little more guidance on where you’re leaning now.”
On Wednesday, the Fed released minutes from the latest Open Market Committee meeting in July. It decided to keep rates the same two days before a disappointing jobs report rocked people’s views of the labor market.
According to the minutes, the vast majority of people in that meeting expressed that it would likely be appropriate to cut rates in September. That said, several made comments that they could have also gotten behind a cut in July, which didn’t happen.
But here’s the kicker: Many participants noted that reported payroll gains might be overstated, and some noted the easing labor market faced a higher risk of more serious deterioration.
Now, it is confirmed that payroll gains have been overstated, just as many of those Fed members suspected.
“Since January of 2023, we’ve seen one downward revision after another to the data — it’s become systematic,” QI Research CEO Danielle DiMartino Booth told Straight Arrow News in August.
The latest Labor Department revision shows the U.S. economy added 818,000 fewer jobs than previously reported over 12 months ending March 2024. That’s about a 30% hit to what the Bureau of Labor Statistics initially released. It doesn’t mean those jobs were lost, it means they were never there in the first place. Therefore, while the labor market was still strong over those 12 months, it wasn’t on quite the tear the initial data indicated. These estimates will not be finalized until February 2025.
“And it takes a lot of time for the Bureau of Labor Statistics data to work its way into subsequent revisions for the Bureau of Economic Analysis data for GDP,” DiMartino Booth noted of revisions.
All of these moving parts are putting the Fed’s soft landing scenario at risk. A soft landing is being able to come down from too-high inflation without triggering a recession.
Inflation has come down quite a bit. The Fed’s preferred inflation measurement (core PCE) is at 2.6%, close to its 2% target. And the softening labor market is all the more reason to act.
In Powell’s speech Friday listeners will hope to hear from him that a soft landing is still in sight.
“We know the Fed’s going to be cutting rates,” Hays said. “We know they’re going to normalize. So it’s more of a question of when and how much and how fast.”
Complicating matters is the upcoming election. The Federal Reserve is a politically independent body and it would never want to be seen as carrying water for one party or another.
There is only one meeting before the election, on Sept. 17-18. Taking politics out of it, most economic signs point to the need to cut rates in September. But that will likely give the economy a boost, and that’s why in an interview with Bloomberg, Donald Trump said cutting before the election is “something that they know they shouldn’t be doing.”
The next Fed meeting starts the day after Election Day, but the Fed may not wait that long with the labor market showing these cracks.
The real reason China’s educated youth can’t find jobs
They were told with hard work and a good education, they’d get the career of their dreams. But for many young adults in China, that is simply not the case.
For a couple of years now, there have been rumors about the “lying flat” or “let it rot” youth in China, a characterization that the kids are lazy and don’t want to work. But there’s more to the story in the world’s second-largest economy.
Some recent graduates are dishing out more money than they can hope to make in a job for interview coaches and job agents. A Bloomberg article said some students are paying $50,000 to try to land a finance job. And still, it’s not enough.
China’s youth unemployment surged to 17.1% in July, up from 13.2% a month earlier, according to the latest government data. This new measure of youth unemployment excludes current students. Experts say the July spike is in part because of students who graduated in June.
In 2023, China’s jobless rate for 16- to 24-year-olds reached 21.3%, so high the government stopped reporting the data. The government later agreed on a new method to exclude students.
Now these young graduates have a new name: “rotten-tail kids.” It comes from the millions of unfinished homes that litter the country known as “rotten-tail buildings,” real estate dreams that never came to fruition.
“There is an entire generation of children who have grown up under the one-child policy,” said Doug Guthrie, a China scholar and professor of global leadership at Arizona State University’s Thunderbird School of Global Management. “Those children have two parents and four grandparents who have very much focused on their well-being. And maybe they’ve become a little bit more willing to wait and think, ‘Well, if I don’t get the perfect high-end service sector economy job that I want, I’ll just continue to live at home.’”
Can China turn its youth unemployment problem around? Watch the full interview with Doug Guthrie in the video above.
Day 1 of Democratic National Convention, Biden slated to speak tonight
The Democratic National Convention kicks off in Chicago as President Joe Biden is among the names scheduled to speak the first night. And Secretary of State Antony Blinken is in Israel preparing for what he calls a ‘decisive moment’ in cease-fire talks. These stories and more highlight The Morning Rundown for Monday, Aug. 19, 2024.
Day 1 of Democratic National Convention, Biden slated to speak
The stage in Chicago for the start of the Democratic National Convention (DNC) that kicks off Monday. The four-day event will conclude with Vice President Kamala Harris and Minnesota Gov. Tim Walz formally accepting the Democratic nominations for president and vice president.
Part of the agenda for day one includes special tributes planned to honor the opening night’s headline speaker, President Joe Biden. Former Secretary of State Hillary Clinton is also slated to speak at the DNC Monday night.
Other speakers you’ll see over the next few days include former presidents Barack Obama and Bill Clinton, former House Speaker Nancy Pelosi and former first lady Michelle Obama.
Mayor Brandon Johnson said Chicago is “prepared and ready” and security has been beefed up inside and outside the convention as thousands of Gaza war protesters are planning to descend on the city.
The Democratic Party has released some of its key policy points it expects to address over the next four days. Those include raising the federal minimum wage to $15 per hour, making the child tax credit permanent and IVF and abortion protections.
Ahead of the DNC, Harris and Walz spent time in the battleground state of Pennsylvania. Former President Donald Trump will be back in Pennsylvania Monday after also spending time over the weekend in the Keystone State.
A new ABC News poll has Harris leading Trump overall 50 to 45%. However, Trump is leading Harris on key issues for voters: the economy and immigration.
Former Congressman George Santos to plead guilty to federal charges
Former Congressman George Santos, R-N.Y., is expected to plead guilty to federal charges Monday, Aug. 19 afternoon. It’s a reversal of his previous plea of not guilty.
Santos, who was expelled from the House of Representatives, faces 23 felony charges, including defrauding donors, lying about his finances and needlessly accepting unemployment benefits, among other things.
A guilty plea would avoid a trial, which is scheduled to begin next month. Sources close to the matter told The New York Times Santos is expected to give a statement acknowledging the crimes he has agreed to plead to.
Blinken: ‘This is a decisive moment’ in cease-fire talks
Secretary of State Antony Blinken is in Israel Monday, meeting with top Israeli officials before traveling to Egypt for ongoing negotiations to reach a cease-fire and hostage release agreement. This is his ninth trip to the region since the Israel-Hamas War began.
“This is a decisive moment,” Blinken said at a press conference in Tel Aviv. “Probably the best, maybe the last opportunity to get the hostages home, to get a cease-fire and to put everyone on a better path to enduring peace and security.”
Israeli Prime Minister Benjamin Netanyahu’s office has expressed “cautious optimism” that a deal can be reached, while Hamas is accusing Israel of stalling efforts to reach a deal in order to continue striking inside Gaza.
The U.S. Citizenship and Immigration Services will begin accepting applications for individuals requesting “parole in that place” that would allow migrant spouses without legal status to apply for a green card and eventually get on a path to citizenship.
To be eligible, the spouses must have been continuously in the U.S. for at least 10 years, not pose a security threat or have a disqualifying criminal history, and have been married to a U.S. citizen before June 17 — the day before the program was announced. They must also pay a $580 fee to apply and fill out an application explaining why they deserve humanitarian parole and providing a list of supporting documents proving how long they have been in the country.
The Biden administration says about 500,000 people could be eligible for “parole in place” plus about 50,000 of their children.
Egg prices on the rise again as bird flu impacts supply
Egg prices are on the rise — again. According to the Consumer Price Index, egg prices were up by nearly 20% in July, and economists say inflation is not the issue this time.
Rather, it’s believed to be the ongoing bird flu outbreak limiting the supply of eggs.
The Bureau of Labor Statistics said the average rate for a dozen large, grade A eggs topped $3 in July for the first time in more than a year. July also marked the third month egg prices rose on an annual basis, a reversal after a year of relative decreases.
Perdue recalls over 167K pounds of chicken after wire found in packaging
The products are the Perdue Simply Smart Organic gluten-free breaded chicken breast nuggets, the breaded chicken breast tenders, and the Butcher Box organic free fully frozen-cooked breast chicken nuggets. All have a “best-if-used-by date” of March 23, 2025.
How big will the Fed go with rate cuts after July’s inflation report?
Following the latest jobs report that showed a weakening labor market, consumer prices rose by less than 3% on an annual basis for the first time since March 2021. Given the Federal Reserve’s dual mandate of price stability and maximum employment, one is coming into focus while the other is slipping away.
How to interpret the data is up for debate and begs two big questions: How big of a rate cut will the Federal Reserve make and is it still on schedule for September?
In July, the U.S. economy added 114,000 jobs, a huge miss from the 175,000 jobs expected. Unemployment ticked up to 4.3% from 4.1% in June. But consumer price inflation rose just 2.9% annually, inching closer and closer to the Fed’s target of 2%.
The Federal Open Market Committee won’t formally meet in August. Instead, central bankers will get together for The Federal Reserve Bank of Kansas City’s Jackson Hole Economic Symposium next week, where Fed Chair Jerome Powell will deliver an address.
“This is his opportunity to send us a clear message on some aspect of what the Fed is thinking about,” Central Bank Central Editor-in-Chief Kathleen Hays told Straight Arrow News.
While analysts still expect a cut in September, it’s unclear how big the Fed will go. Hays said calls for a 75-basis-point cut are out of touch and mostly a response to the “stock market carnage” from early August. She added that the odds of an emergency rate cut before the next meeting have dwindled the inflation data released Wednesday, Aug. 14.
Hays said the central bank leaders she speaks with are still looking at a cut between 25-50 basis points.
The following transcript has been edited for length and clarity. Watch the full interview in the video above.
Simone Del Rosario: There’s been so much conversation about how much the Fed is going to cut. People are even throwing out 75 basis points. This inflation report does not point to that.
Kathleen Hays: Oh, heavens, I don’t think anything pointed to a 75-basis-point emergency rate cut. Because [the] stock market had a big decline and then the yen carry trade blew up after the BOJ made its rate hike, that was not entirely expected, so they all fed together. It was a confluence of forces.
One of the people I spoke to said that these calls for 50-basis-point cuts, even 75 basis points, kind of smacked of investor entitlement. ‘Oh, if things are going bad, the Fed has to hop in and do something.’ So I think 75 basis points was more out of that ruckus, that big stock market carnage, if you will.
In terms of the numbers, it seems to me the Fed is moving slowly. Miki Bowman from the board of governors, in the last few days said she’s not convinced it’s time to cut yet. She thinks the labor market still looks pretty strong. Raphael Bostic, who’s president of the Atlanta Fed, in the last couple of days said he’s sure they cut rates by the end of the year, but he doesn’t think they’re necessarily there yet. Mary Daly, president of the San Francisco Fed, says that she does think they’re going to need to cut in the last part of the year.
It’s just a question now of when they start and how much they do. Does that mean they’re going to do 50-basis-point cuts? Doesn’t the more cautious, gradual, 25-basis-point cut get you there? If suddenly the labor market starts looking a lot weaker, then you could say that could mean they would speed things up. But even Austin Goolsbee, president of the Chicago Fed who’s one of the more dovish people on the Federal Open Market Committee, still says yes they need to cut, policy is restrictive, and there’s a concern if they wait too long the labor market will really start weakening
Simone Del Rosario: Most everybody was targeting September for a rate cut until that jobs report came out and then it was, ‘Why didn’t the Fed cut in July?’ We’re looking at a Fed that has been incredibly cautious. That said, we do have quite a bit of data between now and September. What does that jobs report in less than a month look like for the Fed to have more urgency? Do you think it’s going to be another bad jobs report? Or do you think that’s going to stabilize a little bit?
Kathleen Hays: Well, jobless claims just came back down to 233,000. And I think what’s very important [is the] Bureau of Labor Statistics had a very important number that they sort of downplayed in that report. We know that the unemployment rate jumped up to 4.3% from 4.1% and it wasn’t because necessarily people were losing jobs. It was because more people were coming into the labor force again. And when you start looking for a job and you don’t have one yet, you’re counted as unemployed.
I think even more important is the fact that the number of people who could not go to work because of weather, and that’s a category in the BLS numbers, was up over something like 460,000 in July. That month usually averages about 40,000. So many people have looked at that and said, ‘Hmm, maybe that’s one of the reasons. That was the week of the hurricane that we got that jump in unemployment. Maybe that affected payrolls.
We don’t know for sure but I think that’s one of the things that will be very interesting to see. Does the labor market, via the next jobs report look like, as some would say, normalizing? As former St. Louis Fed President Jim Bullard, said to me recently, he thinks you’re getting more to the natural rate of unemployment. The 3% employment, when it got that low, was kind of abnormal, right? And this is now more of a normal rate of unemployment. He’s convinced that the Fed will do 25 basis points in September. And remember, he was calling for that at the beginning of the year. He thinks they need to get less restrictive, and they can do it gradually.
The ‘Taylor Rule’ John Taylor from Hoover, from Stanford University, he thinks [that according to his rule] the funds rate needs to get down to about 4.5%, maybe 4%. And they could do that with two 25-basis-point cuts and a 50-basis-point cut.
That July weakness in the labor market is going to have to be verified by the August report. If it isn’t, it seems to me that’s going to be the perfect opportunity for them to say, ‘Yes, we know we can start cutting now, we can start normalizing. But 25 basis points at a time is enough.’
Simone Del Rosario: Is there any chance that they don’t cut? Let’s say, to your point, we get the next jobs report and it has normalized and this last month was a fluke. Then you get another inflation report like this. Is it convincing?
Kathleen Hays: My bet would be that they’d have to see another inflation report that is not as good as this one. Yes, this one made some progress on the headline. You can look at the monthly numbers as well. I think it would take something that looks like it’s pushing inflation back up again for them not to cut now.
The doors wide open, but thank goodness you’ve got Jay Powell at Jackson Hole next week and giving his all-important [speech at the] Kansas City Fed Symposium conference Friday morning. This is his opportunity to send us a clearer message, on some aspect, of what the Fed is thinking about. He doesn’t have to do that. I don’t think it’s going to be just looking at the economy and inflation. He’ll probably put this in a bigger context. At the same time, I think people are going to be waiting for him to just give us a little more guidance on where you’re leaning now.
Fed cutting rates before September like ‘yelling fire in a crowded theater’
Many argue the Federal Reserve missed the boat after failing to cut rates to ease financial conditions two days before latest jobs report triggered a recession indicator on Friday, Aug. 2. The Federal Open Market Committee is not scheduled to meet again until Sept. 17-18.
Now, experts are making the case for deeper rate cuts in light of rising unemployment. Some are even suggesting the Fed issue an emergency rate cut between now and the September meeting.
It would, at this point, be akin to yelling fire in a crowded theater if they were to come in with an emergency rate cut.
Danielle DiMartino Booth, CEO, QI Research
Former Fed adviser and CEO of QI Research Danielle DiMartino Booth said that while the Fed is behind the ball, an emergency cut would do “more harm than good.” In an interview with Straight Arrow News, she talked about the signs Fed Chair Jerome Powell missed that led to July’s decision.
The following transcript has been edited for length and clarity. Watch the full interview in the video above.
Simone Del Rosario: I know you have been warning about these underlying symptoms of recession for some time. The Fed chose not to cut in July and then two days later had this jobs report that wrecked the markets for a moment. Where are you? Are they okay to wait until September to cut? Do you want to see something from them in the meantime?
Danielle DiMartino Booth: It would, at this point, be akin to yelling fire in a crowded theater if they were to come in with an emergency rate cut. Those are usually reserved for end of the world type of moments, financial pandemics, financial crises, credit events. So I think at this point it would do more harm than good.
I was strongly of the mind that they should have cut rates at the July meeting. At the podium, when he was pressed, [Fed] Chair [Jerome] Powell did acknowledge that there was a discussion about whether or not to cut rates in July. So you know that even though the decision was unanimous, there were no dissents, that there were some who believed that they should have started in July.
This is nothing new, companies aggressively laying off. Again, it’s been occurring for most of 2024 and yet [Powell has] been ignoring it.
Danielle DiMartino Booth, CEO, QI Research
There’s a company called MacroEdge and they do a very transparent job of tracking job cut announcements. We’ve had an average of 100,000, more than 100,000 job cuts announced over the last four or five months here in a time of the year that is typically benign. Usually you see your worst month of the year be January, that’s when the CEO and the CFO come in and clean house. But April was worse and it’s been just awful ever since then. For heaven’s sake, we’re seven days into the month of August and we’ve already seen 40,000 job cuts announced.
We’re talking about Jay Powell here, he founded the Industrial Group when he was at The Carlyle [Group]. He speaks to lot of CEOs. He knows that they’re in the process of reducing their head count. So just in terms of data on the ground, anecdata, it’s all around him and it’s been all around him.
This is nothing new, companies aggressively laying off. Again, it’s been occurring for most of 2024 and yet he’s been ignoring it. So I really do think that he should have [cut rates] on July 31.
The reason I think that we’ve seen the Wall Street Journal mention 50 basis points is because that’s now become a base case for September 18 or we wouldn’t have read it in the Wall Street Journal.
Simone Del Rosario: We are going to get another month of jobs data before the Fed meets again. What sort of labor picture do you think it’s going to paint when we look up the first Friday of September to see what happened in August?
Danielle DiMartino Booth: I mean, anything is possible with this Bureau of Labor Statistics. I’m done guessing what they’re going to do and what they’re going to report. When the data is eventually revised by law, we see where it really, really is.
For me at least, because there is this systematic downward revision of the data, I just feel like it’s a politicized institution at this point. And I don’t say that lightly, and I’m certainly not trying to be insulting to anybody inside the organization.
I just feel like [the Bureau of Labor Statistics is] a politicized institution at this point. And I don’t say that lightly.
Danielle DiMartino Booth, CEO, QI Research
But you typically see the unemployment rate continue to increase after it’s stopped rising by a tenth of a percentage point. It’s what you’ve seen in many, many recessions looking back: Initially there’s a very gradual rise in the unemployment rate and then it really starts to take off. And we are seeing companies being much more aggressive and large with their layoff announcements and it is actually manifesting in the jobless claims data as well.
Simone Del Rosario: Is it politicized or are they just not as accurate at this point? Is the survey outdated or do you firmly believe that there are underlying political reasons why the picture is rosier when they first paint it than it turns out to be later?
Danielle DiMartino Booth: Again, we are having this discussion in August 2024 and we’ve been seeing downward revisions since January 2023. If, at this point, there has not been an internal recognition that the model is broken and it’s been addressed, then it’s what we call willful blindness.
So at some point you have to recognize that something is broken and address it, not just ignore it, unless you’re ignoring it willfully. And again, I’m not trying to be insulting of the institution, but we’ve just seen a headline in a $25 trillion economy that funding for the household survey is going to be cut. That’s the most ridiculous thing I’ve ever heard in my life.
In a world in which we have big data, artificial intelligence, ways to streamline operations, make certain practices and methodologies more efficient, that we can’t better track the U.S. labor force, it just seems nonsensical to me.
Why the Sahm Rule creator says the recession rule is wrong this time
Recession fears have dominated headlines since Friday’s jobs report, where the rising unemployment rate triggered a recession indicator known as the Sahm Rule. The rule has an incredible track record of signaling the start of a recession, yet this time is an outlier, according to the rule’s creator.
The Sahm Rule states a recession in the U.S. has started when the three-month average of the unemployment rate crosses 0.5% or more relative to its low from the previous 12 months. July’s surprise unemployment rate of 4.3% triggered the Sahm Rule with a 0.53% rise.
Asked point-blank whether the U.S. is in a recession, Claudia Sahm told Straight Arrow News, “No, we are not.”
It’s not a recession and yet the risks are there because we do have these increases in the unemployment rate.
Claudia Sahm, Chief Economist, New Century Advisors
The following transcript has been edited for length and clarity. Watch the full interview in the video above.
Claudia Sahm: We should be concerned that [the unemployment rate] has been rising over the past year. And this is not just about hitting a particular level, or in July, we saw a larger jump than we’ve seen. The Sahm Rule averages across months. It looks over a year-long period. So it’s trying to get this direction that we’re headed and it’s not a good direction.
Now there are some very specific reasons, very special reasons that the Sahm Rule right now looks more ominous than it is. And the first thing we can say about, “we’re not in a recession,” is anytime we make a pronouncement like that, we should look around.
And in fact, broadly speaking, this economy is still growing and a recession means that it’s contracting, right? So we still see consumer spending, we’re adding jobs, industrial production. It’s slowed down, it’s not growing as fast, but we’re still growing. So that’s not a recession – right now.
So what’s going on with the unemployment rate? So there’s the bad reason unemployment rate goes up is there’s less demand for workers, it gets harder to find jobs. Hiring rates have come down a lot. It is a lot harder if you’re on the outside trying to find a job right now. So the unemployment rate has gone up for a bad reason. It does that in recessions.
The unemployment right now is also going up for one of the good reasons. So we have had more people join the workforce who weren’t working before. In particular, there was a big increase in immigration. And that was so important for solving the labor shortages that we’ve been suffering through. And yet, it takes time to adjust. I mean, that should be the theme of this cycle since the pandemic, that big messy changes take time and it’s painful.
It can make it really hard to read where the economy is, but right now we have people who’ve come in, and for some of them, it’s just going to take time for them to find jobs. And in that period, the unemployment rate will go up. Once they find the jobs, it can come back down. And frankly, people coming in to work, that’s a good sign for keeping the economy growing because there are more workers. That extra piece of unemployment rate increase looks bad but actually, it’s probably not.
I can say, looking broadly, what we know about the economy, we’re not in a recession. I mean, it’s never time to panic, but it’s also not recession time either. So it’s not a recession and yet the risks are there because we do have these increases in the unemployment rate that are of the more problematic kind, we just don’t know exactly how much.
Simone Del Rosario: When you created this rule, it was so policymakers could act on signs of a recession. Looking at what’s happening right now, there’s obviously a major movement happening with unemployment. What’s the remedy?
Claudia Sahm: There is a very clear policy lever out there to be pulled and that is the Federal Reserve beginning to reduce interest rates. And that’s the most straightforward one at this point. And the Fed has told us they are pointed at doing that.
Before we found out about July’s employment report, that’s the path they were on. Seeing that there is probably more weakness or at least more slowing in the labor market than we had previously thought, that probably means that they can get going in September, and maybe even cut interest rates more quickly than they had expected.
And it’s important that they have that lever to pull. It’s so important that we’re still in a position of strength. We’re not in a recession, we are still growing, there’s a lot of good things in U.S. economy.
The direction is not good, right? We don’t need to soften or weaken more than we have and that’s kind of where we’re pointed. And the realization that the Fed has been putting pressure on the economy to slow it down and for them to say, “Okay, we don’t need to slow it down anymore,” and reduce risk, that is the release valve to this that can get us to a good place.
That we just kind of settle into the jobs catch-up, we keep growing, we stay away from the recession. That’s the path. And you can tell the story and the path is there. It’s just anytime you get close to these real risky places in the economy, like a recession, you have to be careful because the people can get scared, markets can react. Things can unfold in unpredictable ways. So I think people should have their guard up more than a typical time and yet, there’s still a path to this all being just fine.
Simone Del Rosario: Are you concerned about a near-term recession or are you confident that when the Fed pulls that lever, the risk is over?
Claudia Sahm: I’m a macroeconomist. I’m always concerned. I devoted much of my career to studying recessions and how to fight them. And so I think it’s a risk that we should always be aware of, or at least policymakers should certainly be aware of. It is not my base case.
And again, I don’t want to make light of the Sahm Rule. The pattern I identified, there are other similar people looking at labor market conditions, it’s not like I’m the only one who’s pointed to weakness right now.
It does have a really strong track record and I don’t want to dismiss it out of hand. Something is happening and I don’t want to just write off any of the bad signs because now would be the time to act on them. Given all that, I think the risks are there. They’re not overwhelming. And because we’re still in a position of relative strength, that gives us a real leg up in terms of like what happens over the next three months, six months, 12 months.
Simone Del Rosario: Did the Fed make a mistake last week by not cutting?
Claudia Sahm: I have made the argument for much of this year that the Federal Reserve should begin to gradually lower interest rates, that inflation was coming down. Yes, the beginning of the year was a little rough. We’re also learning that we probably got head-faked by some of that data. We might be getting head-faked by some of the employment data now. It might not be as bad as it looks, right? But there was definitely a case, inflation is coming down, the Federal Reserve should get out of the way.
I had said last week they should start gradually reducing rates because it would be so much better to gradually reduce interest rates, watch the effects on the economy, because there are many question marks. We don’t know exactly how this amount of interest rate cuts translates into that amount of spending. So just to kind of watch and see what the economy does.
Hindsight’s 20-20. I think they could have been the winner last week if they had gone ahead with a cut, but you don’t get to go back and redo. I firmly believe they will assess the situation and take the steps necessary. It takes time for their tools to work so they do need to get going. But it’s not like all is lost. They’re going to have to probably play some catch up and they won’t get to do the victory lap.
Simone Del Rosario: The Fed is finding itself back in a position that it was when it started the hiking campaign, which was that it started hiking too late and then they were doing massive hikes. There’s all this talk now about how much more they may have to cut in September and beyond. Do you think that’s overblown?
Claudia Sahm: This cycle was always going to be messy. This has been a very hard-to-read economy. If you think about it, 2022, the Fed went really fast. They raised interest rates really quickly. There were a lot of concerns that we were going to be in a recession, that that was going to be part of what we had to have happen to get inflation down because it had gone up. Well, in fact, two years later, there has been no recession and we had a big disinflation.
It was not pretty in terms of how you would necessarily want the policy to roll out, but things worked out relatively well. So just because it doesn’t have this elegant, gradual cuts, it’s about getting the job done.
It clearly creates strain on families and businesses when they see the stock market, big numbers moving and what comes next. Fear can take on a life of its own and that is something that lives around the edges and in the middle of a recession. So you don’t want to treat those dynamics lightly, but we’ve dealt with a very uncertain, hard-to-read world for the last four and a half years. So we’re not done with the drama.
It was a missed opportunity by the Fed. At least that’s what it looks like today. We’ll get inflation data next week, maybe it doesn’t. But it looks like that was a missed opportunity, but there are so many more opportunities ahead of them to do good policy.
After July’s big jobs miss, experts say a 50bps cut should be on the table
Experts are criticizing the Federal Reserve for being behind the ball after July’s jobs report showed a weakening labor market, two days after the Fed decided to leave its interest rate unchanged. Economists say the Fed’s restrictive monetary policy is now hurting the once-robust labor market.
In July, the U.S. economy added 114,000 jobs, a huge miss from the 175,000 jobs expected. Unemployment ticked up to 4.3% from 4.1% in June.
“I think that all of those indicators tell us that the Fed needs to act. They should have acted in their last meeting, maybe even a little earlier than that,” said Seth Harris, former Acting and Deputy Labor Secretary under President Barack Obama. “Now the question is, how big of a bump do they need to give? Is it 25 basis points? Is it 50 basis points?
“Let me just say, nobody was talking about 50 basis points before this report,” he added. “I think we’re now going to see people talking about 50 basis points and some folks will even talk about more. So I think that this report really sends a signal to the Fed. The boat is pulling out, the train is leaving the station, whatever analogy you want to use, and they need to get on board.”
Fed Chair Jerome Powell hinted that a September rate cut could be on the table during a press conference Wednesday, June 31, ahead of Friday’s jobs report.
The Fed is holding its interest rate at a two-decade high in an effort to tame inflation, but Harris said the weakening labor market requires a more decisive approach.
“Go ahead and cut rates aggressively and send an indication that you really are concerned about growth and you’re also concerned about employment,” Harris told Straight Arrow News. “To me, a 25 basis point cut was signal sending. It wouldn’t have had a dramatic effect on the economy directly, but by sending the signal that their concerns about inflation have been reduced, that inflation descended to a level that suggests that we’re going to be just fine in that area, but that they are also concerned about growth and employment.
“That was signaling, not policymaking. Now, I think they have to think about policymaking. After seeing these numbers, I think they have to think about policymaking.”
Weak jobs report and uptick in unemployment ‘a warning sign’
Hiring fell considerably and unemployment rose in July. The unemployment rate was up for the fourth straight month as eyes turn to whether or not U.S. economic policymakers will act in the coming months.
Employers added only 114,000 jobs in July, according to data released Friday, Aug. 2, by the Bureau of Labor Statistics. That number missed economists’ expectations of 175,000. Meanwhile, the unemployment rate in July ticked up to 4.3% from 4.1% in June. The unemployment rate is at its highest level since October 2021.
“That is a meaningful slowdown,” former Acting and Deputy U.S. Labor Secretary Seth Harris told Straight Arrow News Friday morning. “It’s still a positive number. It’s certainly not a sign of a recession, but it absolutely is a warning sign.”
The number of unemployed people increased by 352,000 to 7.2 million in July.
“That is a troublesome number, we are actually beginning to see a meaningful increase in the number of people who are unemployed,” Harris added.
Meanwhile, the number of long-term unemployed workers, those who are jobless for 27 weeks or more, sits at 1.5 million in July, up from 1.2 million one year ago. Long-term unemployed workers account for 21.6% of all unemployed people.
The labor force participation rate, or people who are either in a job or actively looking for a job, didn’t change much in July and sits at 62.7%.
“That means people aren’t completely abandoning ship and leaving the labor market and just giving up all hope that they’re going to be able to find a job,” Harris said of labor force participation. “That would really be a troublesome indicator. So we’re not there yet. These numbers are not crisis numbers, but they are an indication that the Federal Reserve is at real risk of missing the boat, of being too late to the game when it comes to making sure that jobs continue to grow and that workers have good opportunities in the labor market. That’s part of their dual mandate. Inflation is not supposed to be their only concern.”
The Federal Reserve’s dual mandate is price stability and maximum employment. That means an inflation rate around 2% and a labor market where most everyone who wants a job can find one.
The Fed has been aggressively addressing inflation, which is down to 3% from a 9% peak two years ago, according to the consumer price index. That has translated to interest rates that are at a two-decade high.
Americans have been waiting for relief from the Fed in the form of rate cuts. The Fed funds rate, which affects interest rates on nearly every loan, currently sits at around 5.33%.
Here’s what happened when Americans received $1,000 a month in 3-year study
Years ago, OpenAI CEO Sam Altman set out to discover what would happen if people were given cash every month with no strings attached. This week, the results are in from the largest universal basic income study in the U.S., though how it went depends on how one interprets the findings.
Right-leaning Reason writes, “Bad News for Universal Basic Income: Researchers found that giving people $1,000 every month for three years resulted in decreased productivity and earnings, and more leisure time.”
Keeping in tune with Straight Arrow News‘ mission of unbiased, straight facts, let’s take a look at the facts from the research paper itself.
The ground rules
Researchers randomly selected 1,000 low-income people to receive $1,000 per month with no conditions for three years. A separate control group of 2,000 people received $50 per month to participate in the research.
The people in this study had an average household income of $29,900 in 2019, so $1,000 a month translated to a 40% increase in household income.
In 2016, Sam Altman wrote about launching the Basic Income Project and his desire to answer some theoretical questions about it.
“Do people sit around and play video games, or do they create new things?” Altman asked. “Are people happy and fulfilled? Do people, without the fear of not being able to eat, accomplish far more and benefit society far more? And do recipients, on the whole, create more economic value than they receive?”
The results
Excluding the free money received, individual income fell by about $1,500 per year, or 5%. It led to a 2 percentage point decrease in labor market participation and people worked roughly 1.3-1.4 fewer hours per week.
So what did they do with that extra time? Researchers saw the largest increase in leisure time, followed by smaller increases in transportation – people are driving around doing more – and time spent on finances.
Researchers found no impact on the quality of employment. They did see hints that people were thinking about entrepreneurial endeavors and there were some signs younger participants were investing more in education.
There are more results in the paper.
Overall, the negative effects on labor supply do not appear to be offset by other productive activities, and we do not observe people getting better jobs over the 3-year duration of the program. 33/https://t.co/KqT7Z9pw3Upic.twitter.com/neOXj135eF
Researcher Eva Vivalt wrote, “Overall, the negative effects on labor supply do not appear to be offset by other productive activities, and we do not observe people getting better jobs over the 3-year duration of the program.”
The study concluded, “While decreased labor market participation is generally characterized negatively, policymakers should take into account the fact that recipients have demonstrated–by their own choices–that time away from work is something they prize highly.”
Universal basic income is a hot topic in Silicon Valley. That’s because the tech world is actively developing AI that could make some jobs obsolete.
“There will be fewer and fewer jobs that a robot cannot do better,” Elon Musk said in 2017. “What to do about mass unemployment? This is gonna be a massive social challenge. And I think, ultimately, we will have to have some kind of universal basic income. I don’t think we’re gonna have a choice.”
“These are not things I wish would happen,” Musk continued. “These are simply things that probably will happen.”
Altman, who was behind this study, said that while UBI is not a full solution, it’s a component that should be pursued in the face of AI advancement.
“As a cushion through a dramatic [employment] transition,” he said of UBI. “And the world should eliminate poverty if able to do so. I think it’s a great thing to do as a small part of the bucket of solutions.”
The idea of paying people with no conditions is incredibly expensive – the Tax Foundation said Andrew Yang’s $1,000-per-month proposal would cost $2.8 trillion per year. And many believe it’s an affront to capitalism.
“This is straight out of the Karl Marx playbook. This is not out of the Adam Smith playbook,” radio host Dave Ramsey said during his show last year. “Karl Marx, Father of Communism. Adam Smith wrote the Tome that we were all required to read on capitalism if we took economics. My friend Art Laffer, one of the leading economists in the world, says, ‘If you pay people not to work, please expect them to not work.’”
Again, the people from this study did still work – try living off $12,000 a year – but they did take off a little more than an hour per week.
Philly workers furious over mayor’s order that they return to their offices
Philadelphia city workers said they are “pissed off” about being forced back into the office, running into what they say is a shortage of space and resources. On July 15, Mayor Cherelle Parker’s return-to-office mandate went into effect, mandating municipal workers be in-person five days a week.
City officials said about 80% of its workforce — including firefighters, police officers and Water Department workers — was already working on-site before the mandate took effect.
“I know when I made my decision regarding the return-to-office, the change to location of where work would take place, that there were some people who were not going to be happy about the decision that I made.” Parker said at a news conference July 10.
One worker told PBS News he was concerned about his jam-packed train commute and the lack of office space in city buildings. He claimed that before the mandate, hybrid workers would usually share desks on different days. Now, some are assigned to work in different conference rooms with nearly a dozen others or they don’t have access to computer monitors or outlets to charge their electronics.
To try to make the change more palatable, the Parker administration offered French fries from a local chicken place, which some workers told PBS was an insulting move.
Others said they felt their commutes weren’t worth the office time. Only contract workers receive SEPTA train passes, so most city workers are back to paying for their commutes out of pocket.
Dissatisfied city workers could pose big problems for Philly’s already years-long understaffing crisis. In April, it was reported that Philadelphia had 6,200 open positions.
Earlier in July, the Philadelphia Inquirer reported a judge said he will hold Philly’s prison system in contempt of court over its understaffing crisis as the city has a shortage of more than 800 corrections officers.
The city’s chief administrative officer said the administration will continue creating an enjoyable work experience for city workers.
