Fed Watch – 8/23/2024

The below transcript is a literal translation of the podcast audio that has been machine generated by Notta.

Hi everyone. My name is Taylor St. Germain with ITR Economics and welcome to the August 23rd edition of Fed Watch. Timely edition of Fed Watch and hopefully you see some excitement in my face today and that’s based on the remarks that we heard from the Jackson Hole Summit just this morning from Chairman Jerome Powell.

It is clear that the Fed is going to see a little bit of a different, is going to take a little bit of a different direction as we move forward as it relates to interest rates, which is welcome to all of us at ITR and I know many of our clients that we’ve been talking about. The rate cuts are officially on the horizon based on Chairman Powell’s comments this morning. Let me share a few of his comments with you.

First off, he started off by saying the labor market has cooled considerably. Unemployment at 4.3% is still low by historical standards, but has increased the percentage point with most of that increase coming over the past six months. He also mentioned that job gains have remained solid but have slowed this year and it seems unlikely that the labor market will continue to be a source of elevated inflationary pressures anytime soon and they also do not seek or welcome further cooling in the labor market conditions, they being the Federal Reserve and the central bank.

From the labor side of the equation, which is half of the Fed’s mandate, they are seeing the job market slow down. Again, our perspective here at ITR is still a strong job market, but we too have seen some of the slowing as we’ve covered on previous Fed Watch episodes. It’s clear that the Fed feels pretty comfortable from a labor market standpoint that we can course correct and start to really consider rate cuts as we look forward to this September meeting.

Now the other half of their mandate is inflation and Chairman Powell again highlighted that the upside risks to inflation have diminished and therefore the time has come to policy adjust. He says the direction of travel is clear and the timing and pace of rate cuts will depend on the incoming data, the evolving outlook and the balance of risks. This is the most confident or I guess the most forthcoming the Fed has been as it relates to the fact that we will see these rate cuts characterize our future.

We see a lot of that same data here at ITR. Again, the job market remains strong but has slowed down. We covered that on one of our recent Fed Watch episodes and again that’s no surprise to us and as a reminder to everyone, the job market is not a leading indicator for the economy. It tells us nothing about the future so we expected to see some of this cooling in the labor market but we’re glad the Fed is seeing something similar to us at this point which gets us closer to those rate cuts.

When we also look at the latest inflation data which came out since the last time I was here visiting with all of you, we saw for the U .S. Consumer Price Index, the CPI, we saw that 1/12 growth rate in July cool down to a positive 2.9 percent. That is the lowest 1/12 growth rate that we’ve seen in over three years. So we’ve been seeing a lot of this data here at ITR which is inflation cooling, the job market cooling but remaining healthy and at this point it seems pretty clear that the Fed sees the same and they’re looking forward to rate cuts as we move here into the immediate future.

The next Fed meeting, September 17th and 18th, which I think most of the market at this point is expecting to see that first rate cut and after the comments at Jackson Hole today that seems pretty likely. So hey I’m excited this Friday morning we’ve been waiting for for rate cuts. We at ITR are happy that those rate cuts are likely to come to fruition and we’re still looking ahead to 2025 as these rate cuts come down and we see this economy re-accelerate again both in terms of GDP and industrial production.

Good news on a Friday from the Fed doesn’t get much better than that for an economist. Hope you enjoyed this edition of Fed Watch and I’m looking forward to seeing you all in the next one. Take care for now.