The Labor Market Is Cooling | Talmon Smith & Jack Farley (Driving Back from Camp Kotok)
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We are driving back from Camp Kotak. I am joined by Tal Smith, The New York Times. Tal, you were just saying that contrary to a Bloomberg opinion piece that the stakes are so high for Jay Powell that actually the stakes are lower than they've been for a while. What did you tell us what you mean, by us? And by the way, as you drive down the 95, welcome to Forward Guides. Thank
you for having me. Yeah. It it's this odd position that we're in right now where this is the moment that we've been waiting for. Not only has the Fed reached a terminal rate in terms of how high they'll raise interest rates on the short end, not only have they rhetorically pivoted to there being a balanced set of risks, markets are now fully pricing in not just whether they will cut or not, but how big the cut will be and how many cuts will there be until they reach what they think will be the neutral rate fundamentally. We
know the direction
we're going in. They've to the extent it's mission accomplished, They've they've gotten the the labor market clearly back into balance, and that in the quits rate, you got employment. And so now we're in this
sort of awkward, somewhat exciting, but not super exciting wait
and see moment where retail sales and jobless claims have shown that, hopefully, the tick up in unemployment that sparked the triggering of
the sound rule that it's, hopefully, for the
good of this country and for good of workers, a false alarm. We don't know. And I think just people of good reason and goodwill and probably people in the FOMC are are hoping that the next few months are boring. Obviously, politics will be very exciting. But in terms of just the economy itself, you hope that unemployment doesn't go very much very much higher at all. In fact, I think some people, including me, would hope that oncoming ticks down in terms of you 3. And that inflation remains contained that finally OER, owner's equivalent rent, rolls over. We've been waiting since forever. And, y
That's good. And, yeah, I'd say you said the bond market is pricing in all these cuts. The bond market has been fighting the Fed the entire way. The short term interest rate structure, I should say, from 0 days, one day to to 2 years and been pricing that the Federal Reserve is not gonna hike as much as the Fed says. It's not it's gonna cut by way more. The Fed says they're on pause, but we're gonna price in 6 cuts. We're gonna cut it price in 10 cuts. This time, it's different. The Fed has signaled it's real this time. They're gonna be cutting. It's very likely gonna be in in September. They
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