Breaking news reveals a robust job addition of 199,000 in November, exceeding expectations, and pushing the unemployment rate down to 3.7%. A commendable 35 consecutive months of job growth paints a positive picture. However, the critical question remains: Can the Fed pivot amidst escalating inflation and a deteriorating economic landscape?
For everyday consumers, the reality is clear. The cost of living has surged over the past few years, outpacing wage increases. While life quality may have improved on a personal level, the economic circumstance is undeniably worse, marked by successive crises and persistent inflationary pressures.
Examining the Fed’s previous attempt to normalize its balance sheet during QT #1 (November 2017 to August 2019), a $688 billion reduction in total assets occurred without significant inflation. Fast forward to the present, and inflation, particularly in services, remains a concern. Core services inflation, standing at 4.6%, may even be underreported.
The Fed faces a challenging choice. It cannot turn dovish with inflation significantly above the FOMC 2% target. Consequences loom, with rising credit card and auto loan delinquencies, increasing corporate defaults, and declining bank lending.
As the Fed holds its ground, the probability of a recession in 2024 is at levels seen only twice since 1960—both instances ending in severe recessions. The road ahead is treacherous, and the Fed’s decisions on interest rates will play a pivotal role in determining the economic course in the coming months.
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This was another very strong jobs report, particularly the fall in unemployment.
Getting inflation to 2% is going to be tough with such a strong labor market.
The Fed's job is still far from done right now.
Follow us @KobeissiLetter for real time analysis as this develops.
— The Kobeissi Letter (@KobeissiLetter) December 8, 2023
just going to leave this here pic.twitter.com/g6GjmOQ6bN
— ian bremmer (@ianbremmer) December 7, 2023
From crisis to crisis to raging inflation: 🚨🚨🚨
During QT #1 between November 2017 and August 2019, the Fed’s total assets dropped by $688 billion, but inflation was below or at the Fed’s target (1.8% core PCE in August 2019).
At the time, the Fed was just trying to… pic.twitter.com/nDUGmvYxuS
— Wall Street Silver (@WallStreetSilv) December 8, 2023
NOT priced in
Fed can't & won't turn dovish w/inflation significantly above FOMC 2% target…consequences: credit card & auto loan delinquencies keep rising, corporate defaults move higher & bank lending falls more…entering period w/weaker economy w/Fed on hold@apolloglobal pic.twitter.com/Nr1BCdtXZ7
— Danielle DiMartino Booth (@DiMartinoBooth) December 8, 2023
Losses at the Fed have now passed $125 billion pic.twitter.com/y6RIwug8WS
— Win Smart, CFA (@WinfieldSmart) December 8, 2023
The probability of a recession in 2024 is at levels only seen 2 times since 1960
Both ended in severe recessions
This time is NOT different pic.twitter.com/PezFMDlxfU
— Game of Trades (@GameofTrades_) December 8, 2023
Bulls, you are getting rope-a-doped the same way as last time. pic.twitter.com/UQ19QSkFBW
— Mac10 (@SuburbanDrone) December 8, 2023