The end of the port strike is another piece of very good newsThe Fed does not want to react too much to one data pointIf we get more jobs reports like this, we will be more confident we are settling at full employmentStrong jobs report is likely to mean strong GDPWe are still a ways off from having to sort out where neutral rate isWe have time and runway to figure out where the settling point on the Fed policy rate isWe need to try to maintain conditions like they are nowIt’s hard to say where the neutral rate is but it’s definitely higher than zeroThe bulk of FOMC participants see it in the 2.5-3.5% range. We’re still a ways off from having to sort that outContacts mostly say ‘steady as she goes’ not a re-acceleration and not a drop-offIf productivity keeps booming, that implies higher growth, higher neutral rate but only because the economy can handle itA broad set of data shows the labor market is coolingThe problem with a soft landing analogy is that it implies stopping; the economy keeps goingIf we could keep unemployment at 4% to 4.5% with inflation around 2%, that’s exactly what the Fed wants, everyone should be happy
He’s happy with the jobs report but certainly not indicating the Fed doesn’t need to cut rates.
This article was written by Adam Button at www.forexlive.com.
