Macro Horizons Inflation's Vote
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Dec 6, 2024 Delve into the surprising trends from the recent U.S. labor market data, shedding light on how this could shape future Federal Reserve policies. Explore the potential impacts of tariff increases on inflation and the delicate balance of rising wages. The conversation also digs into global influences on U.S. treasury yields amid geopolitical tensions. Finally, understand the crucial role of liquidity ahead of CPI data and what it means for investor sentiment and financial markets in the coming weeks.
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Softening Labor Market
- The November jobs report showed softening labor market conditions, with increased unemployment and decreased labor force participation.
- This increases the likelihood of a 25 basis point Fed rate cut in December, barring significant inflation surprises.
Fed's Path to Normalization
- Fed Chair Powell reiterated data dependence and normalization path, hinting at an eventual pause in rate cuts.
- This pause is anticipated in January, with further 2025 plans dependent on updated economic projections and political developments.
Tariffs and Inflation Expectations
- While the Fed may not react immediately to tariffs, the potential impact on inflation expectations is a concern.
- Rising wages combined with tariff-driven cost increases could create upward pressure on inflation expectations, complicating the Fed's situation.