6月非农或强化加息预期

Let's talk about the data. First is the data on the reaction function data. The unemployment rate is unchanged from a year ago. Core PC inflation is about 60 basis points above where it was a year ago, and only a some of that is one off. So despite all this policy, 75 basis points easier than last year to us they're clearly offside. So our forecast is just that they'll take back the cuts that they did last year. They will risk management cuts.

Those risks around labor have dissipated at this point. And then in terms of the reaction function, we thought going into June that this is fundamentally a dovish FOMC that would find reasons to not hike rates. But the QP, it's not just about the dot plot. It's the fact that nine people expect to hike, even though no one has the unemployment rate falling this year. So that for us is is a hawkish shift. And I believe the guy from South Africa was offside by had told us that was just absolutely ridiculous.

But you don't need replay for this but you don't need a VAR Kevin where does it get a VAR. Yeah. What he does get is a non-linear function one rate rise a second. A third wildly non-linear. Correct. I don't think it's wildly non-linear. 75 basis points is very normal for a mini cycle for the fed. So to be clear, we don't think they have as much of an inflation problem as they did back in 2022. Underlying inflation isn't 3.5%.

It's probably closer to, you know, do it or something like that, which is why they don't need to go back to 5% right at 3.5% for PC. The Taylor rule would tell you you need to be at 5%. That's not what we're calling for. So how's the consumer doing out there? I mean, better than we think. How is the consumer doing? The consumer is doing great. And we actually have data to back this up. So the Bank of America data credit and debit card spending, we report this almost in real time.

We've already published reports through the 20th of June. And what we're seeing is an acceleration in spending of gas as gas prices come down, even though you didn't really see a deceleration x of gas as gas prices went up. So the consumer is in good shape. Now, some of this could be a boost from the World Cup that rolls off. But there's no clear sign again that the risks to activity are to the downside. And just going back to Robert Frost for a second term, he has promises to keep Porsche's promises to keep.

So that was a Colby Smith article today. Well, I started at Amherst. There's still the Lord Jeffs to me. I'm not going to them home, mama. No comment. No come talk to us about. So presumably the fed and this chairman has some political pressure to lower rates. Boy, if he tries to do three rate hikes this year, the social media posts are going to be fast and furious. Does that figure into your calculus at all? That's a bit outside my wheelhouse.

But what I would say, just as a statement of fact, is that the president noted during the press conference that he would be okay with the fed hiking rate. And honestly, if you think about Jared Walsh's incentives right now, he has a brief window where he can hike rates and not necessarily take the blame in the sense that the inflation happened under the previous regime. If he doesn't hike now and inflation doesn't get better over the next year.

And there's a lot of pressure from the committee to hike next year. He'll have to own that longer term in terms of inflation, to the extent that this decline of globalization. I'm not sure if you guys subscribe to that, but the decline of globalization, this America refers to near shoring French shoring. Does that structurally lift inflation? It does. It does. And we're seeing some of that in the inflation data as well.

If you look at the underlying drivers of inflation, for sure we don't have a disastrous problem around demand again, which is why policy doesn't need to go to five 6%. But supply drivers are really, really sticky. And that's not going away. Right. It's just wave after wave of supply shock. And that's something the fed will have to contend with. If you're looking at 510 years of supply driven inflation just being elevated, then you have to put more downward pressure on demand, or you have to accept that you're always going to miss your target by 5070 basis points.

When you talk to your equity people, which are really competent, like a huge Excel spreadsheet. Quantitative strength if you get above a three rate increases, what does the stock market do? My sense is it'll be fine. I mean, look at the fact that we've gone from to cut price for this year to a hike and a half and equities have navigated that just fine. So another hike and a half. Could that be the straw that breaks the camel's back?

Maybe. But I don't think that's a slam dunk either. So for labor what is the B of a kind of I call as it relates to the labor market kind of intermediate longest term I guess. Right. So the longer term view is that I will replace tasks more than it will replace jobs. So ultimately there's going to be creation of a whole bunch of new jobs that we just can't conceive of right now. So I like the statistic. I something like 60% of jobs that exist today did not exist back in 1940.

All right. So I think there's going to be something like that happening down the line now. That said, there is a transition period. There are going to be winners and losers, and the speed of that transition is going to matter a lot in the near-term for fed policy.