Fed Watch – 1/10/2025

with lauren saidel-baker

WEEKLY FED WATCH

This week on Fed Watch, ITR Economist Lauren Saidel-Baker fills in to discuss the latest US Nonfarm Payrolls report and its implications. How will the market reaction to the strong jobs report impact future decisions by the Federal Reserve Board? Tune in to find out!

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Key Episode Takeaways

  • 0:11 – Reporting on growth for US Nonfarm Payrolls
  • 0:26 – Highlighting labor market conditions
  • 1:07 – The market’s reaction to the jobs report
  • 2:09 – Reviewing the Federal Reserve Board’s December meeting
  • 2:32 – Conclusion and key takeaways
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“Our forecast here at ITR is for further growth in the total number of employed workers. And really, the limiting factor that we are seeing is labor availability.” – Lauren Saidel-Baker Share on X
“What this very strong result does is it says the Fed doesn't need to do too many more cuts. Inflation has been very subdued; the labor market is not showing signs of stress with a big headline beat like this.” – Lauren Saidel-Baker Share on X
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The below transcript is a literal translation of the podcast audio that has been machine generated by Notta.

Hi, I’m Lauren Saidel-Baker, filling in for Brian Beaulieu on this January 10th episode of Fed Watch. Thanks for joining us today, and I want to talk about some very topical numbers. U.S. non-farm payrolls just came out this morning.

It was a huge headline beat. Non-farm payrolls grew by 256,000 jobs well above estimates, and the unemployment rate dropped to 4.1%. So as we look at that result in the context of Fed action and our ITR economic forecast, I first want to back up and put this in context. We are never hanging our hat, and the Fed is certainly not deciding policy based on one month of data, whatever that data point may be. So we want to look at these numbers in the general scale. The labor market today has been directionally loosening, but still remains very tight.

Our forecast here at ITR is for further growth in the total number of employed workers. And really, the limiting factor that we are seeing is labor availability. It isn’t the number of jobs that could be created, it’s how many people do we have to fill those jobs? So even today, with some directional loosening in the labor market in the tail end of 2024, we still have less than one unemployed worker per each available job opening.

So getting back to today’s numbers, the market didn’t like this result. Stocks plunged on the news, I’m sure they’ll bounce back in short order, and Treasury yields actually soared. Essentially, what this very strong result does is it says the Fed doesn’t need to do too many more cuts. Inflation has been very subdued, the labor market is not showing signs of stress with a big headline beat like this. So the impetus is to think that the Fed maybe will do fewer cuts here in 2025.

I want to remind everyone though that when we go back to the Fed’s December meeting, they scaled back their median expectation. The dot plot now shows a median expectation of just 50 basis points of cuts this year. And we at ITR Economics, if you’ve been following our forecast, if you’ve been following Brian on FedWatch, you know that we are expecting resurgent inflation in the tail end of 2025.

So to put today’s big headline nonfarm payroll speeding context, really what matters today is still the inflation side of the Fed’s dual mandate. That’s where we see some fundamental factors coming back. We’ll talk more about those as we get closer to the tail end of this year. But if there’s one item to watch, it’s probably the inflation side much more than today’s beat. Thank you so much for joining us today. We’ll see you next week here on Fed Watch.