“Still a long way from our goals”
With bond yields continuing to rise and equities wobbling, all eyes were once again on Jerome Powell this week. A week after 10-year Treasury yields rose to the highest levels since the beginning of 2020, Powell spoke at a Wall Street Journal Jobs Summit and addressed many of the dynamics that seemed to be worrying markets. He reiterated the view that the current inflationary pressures were transitory and joined other Fed officials in downplaying the recent rise in Treasury Yields (a view similarly echoed by the FOMC’s counterparts at the Bank of Japan regarding the yield on their own JGBs).
But while the Fed may be less than sanguine about achieving its inflation mandate, another week has meant another round of headlines highlighting rising costs. Case in point, global food prices have risen for the last nine months, “the longest run since 2008, when the world faced the first of two food crises within several years”. (Though consumers shouldn’t be worried). And the latest ISM PMI data, both for Manufacturing and Services, showed ongoing price increases. Both the Manufacturing and Services Prices indexes hit levels last seen in 2008 and headline indexes remained at expansionary levels, though the ISM Services did miss analysts’ forecasts. There are admittedly, rather complex dynamics relating producer prices and consumer prices (as we highlighted back in 2018), but all else equal, it may be a decent bet to think at least burger prices will increase if the Biden stimulus package is passed and $15 minimum wage kicks in.
However, regarding employment, the second part of the Fed’s oft-cited dual mandate, the data appears to be mixed. On the positive side of the ledger are the data from the same ISM Manufacturing and Services reports cited above. Many respondents, especially in manufacturing, reported labor supply issues. Today’s Nonfarm Payrolls data also appears to be on the positive side, with the BLS reporting a month on month change of 379k jobs vs a median estimate of 200k. But while the month-on-month numbers are good, the overall employment situation is less than stellar. As the White House Council of Economic Advisors wrote in response to the latest BLS data, though there are some positives to be found in the acceleration of growth and upward revisions, “the economy remains down 9.5 million jobs from February 2020 and will require more than two years of job growth at February’s pace just to get back to pre-pandemic levels”. Additionally, there are some important details to note. First, echoing Powell’s comments during a February speech, the CEA emphasized that though the official unemployment rate is just above 6%, the rate “adjusted for labor force dropout and misclassification issues” is significantly higher at 9.5%. Second, “Black and Latino workers have been particularly hard hit, with the adjusted [unemployment] rate for both in double digits”. Even the official numbers show uneven improvements in joblessness. As this article from Bloomberg highlights, while the overall jobless rate fell, and other demographics saw a decline in unemployment, the “unemployment rate for Black Americans rose to 9.9%, the highest among all race groups tracked”.
Given comments from various Fed officials about the importance of considering equity in monetary policy, should inflation turn out to be somewhat more solid than the “transitory” impulse the Fed is expecting, this data may give the FOMC pause in their deliberations.
