Inflation or jobs, the important point is there are pockets of strength and weaknesses in the economy.
— In this week’s episode of “One Man’s Opinion” The latest nonfarm payrolls data shows there’s a kind of goldilocks scenario as the numbers were not so strong that they would cause people to be concerned about the Fed moving too fast and yet they were strong enough to indicate there’s good growth, but not great growth.
That’s going to put the Fed on hold for a while in terms of raising rates, which in turn should be good for the bond market, said Mark Kiesel, deputy chief investment officer at Pacific Investment Management Co.
Asked if that means the NFP allows the Fed to remain on autopilot with their monetary policy, Mark said the Fed is likely to de-emphasize the unemployment rate. The unemployment rate is coming down because people are leaving the workforce. The important part is the inflation rate very low as people are not seeing higher wages. Companies are issuing debt into the corporate bond market, but they are not hiring and spending. Rather they are actually buying their stock back in order to trim their balance sheet, which is not good for growth. So the economy is not really taking off yet that allows the Fed to be patient, he observed.
Asked if he agrees with PIMCO chief executive officer Mohamed El-Erian’s observation that the standalone jobs report will have a diminishing impact on asset prices and Fed monetary policies, Mark answered in affirmative. What matters most is the slack in the labor market and products market, and specifically the wages and inflation.
The core PCE is basically at one percent and the Fed wants to see a higher inflation. There are some parts of the economy that are doing well, and there are others that are not doing well. So, overall, the economy wants to see more jobs, the Fed wants more jobs and a higher inflation. That allows the Fed to be on hold, which means employment report is probably less important than inflation going forward, Mark said.
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