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Right, onto things that shouldn't matter but do. JOLTS: The Job Openings & Labour Turnover Survey. Please contain your excitement. Keep arms and legs inside the vehicle at all times...

It's absurd that this little survey has so much power and influence for our monetary overlords, yet here we are...

The labour market's out of balance. Too many jobs, not enough workers. That ratio looks like this πŸ‘‡

Bank of America summed up the last report

A key measure of imbalance in the labor market is the ratio of job openings to unemployed. A normal level is about 1-to-1. In March the ratio peaked at a remarkable record 1.99. In August there seemed to be real progress as the ratio dipped to 1.67. Now it is back to 1.86.

The August figure was later revised up from just over 10 million to 10.3 million, so some of that 'progress' was never real anyway. Nonetheless, it's a long way from 'balanced'.

Around 6 million people are currently unemployed (and registered as looking for work) in the US.

Using BofA's 1:1 rule, roughly 4 million job openings need to be filled (unlikely given the labour shortage), or companies have to massively cut recruitment in order to bring this back into line...

BofA say β€œit will take about a year for job openings to return to normal levels”

Indeed data is a decent proxy, and suggests that job openings probably won't change too much in today's data...

It's not just about the openings though. Back to BofA πŸ‘‡

Other parts of the report hinted at a less extreme imbalance.
The quits rate held at 2.7% for a third consecutive month. This is down from the 3.0% peak seen last December, though it still is elevated compared to pre-pandemic peak of 2.4%.
A slower quit rate can ease wage inflation since job switchers have been getting much stronger wage gains than job stayers.

Job stayers have been the suckers in this story (see Desperate for a Fed Pivot)

If you want a pay rise, you switch jobs. Or you threaten to. As long as there are plenty of jobs out there, workers have the power to push for better wages.

This is largely why the Fed is forced to hike rates. Without this dynamic, they could plausibly argue that it's all supply-driven transitory inflation, but that ship sailed long ago.

Speaking of shipping, inflation's no longer being driven by shipping rates πŸ‘‡

That took about 12 months too...

All of which means it's far too early for the Fed to really let up. The biggest risk is that the terminal (peak) interest rate is higher than currently thought.

The longer these inflation/labour market imbalances persist, the longer the Fed may be forced to keep hiking in 2023. It's way too early for them to declare any kind of victory.

So they won't.

And Powell's speech today will probably reinforce that idea. As a group, they're getting relatively less hawkish, but the boss still has to walk the hawk and try to end hopes of a premature pivot in his 'on the Economic Outlook & Labour Market' speech today before the Fed enters their communication blackout period this weekend.

Whether markets get the message or not is another question entirely. Plenty are calling for a Santa Rally to end the year...

Chief Hawk Bullard's Taylor rule speech was ignored. He thinks 5% rates is an absolute minimum, not a ceiling.

If there's no recession, what happens to inflation?

Finding balance again without causing a recession looks unlikely. The historical odds don't favour the forecasts of a small uptick in unemployment either.

The Fed Chair steps onto the stage at 18:30 UK time, 13:30 Eastern for a one hour event. If he doesn't show up like this... πŸ‘‡

Paul Volcker
Paul Volcker

We could easily see another risk rally. Powell's best weapon is probably to mention a higher peak/terminal rate, talk up prospects of more 25bps hikes in 2023, plus anything else that casts doubt on the idea of a fast pivot to rate cuts next year.

Fed fund futures are currently pricing ~30bps of cuts for the second half of 2023.