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Fed Chair, US Data Point to Goldilocks Economy

Matt Eidinger November 14, 2019

Data released by the US Department of Labor (DOL) Thursday and testimony from US Federal Reserve Chair Jerome Powell Wednesday tend to confirm the US economy is indeed in a “Goldilocks zone” with slow, but consistent growth and stable labor market conditions.

The DOL reported that initial jobless claims, a leading economic indicator, rose modestly to 225,000 during the week ending November 9 – disappointing markets, which were expecting a reading closer to 215,000. Job losses in the manufacturing sector were high in Pennsylvania and Illinois.

The less volatile four-week moving average registered a reading of 215,250 – unchanged from last week. Continuing claims for the week ending November 2 came in at 1,683,000, representing a fall of 10,000 from last week.

This morning’s labor market data comes less than 24 hours after Fed Chair Powell began testimony before a joint committee of the US congress. In prepared statements, he acknowledged the ongoing threat to the US economy from global trade tensions.

However, Powell also pointed out the US unemployment rate was at a half-century low of 3.6% and that “…participation in the labor force by people in their working years has been increasing. Ample job opportunities appear to have encouraged many people to join the workforce and others to remain in it.”

Indeed, the US economy has consistently pumped out jobs each month since 2010 and weekly unemployment insurance claims continue to remain in a stable, relatively low range just above 200,000.

Although growth in GDP and inflation remain slower than during previous economic cycles, the Fed’s “wait and see” approach appears to be justified considering continuing economic developments.

Dollar dominance remains firmly in tact this morning after the trade weighted dollar index’s modest rise throughout the week. The USD/CAD spot rate was largely unchanged this morning after 8:30AM.

With the abovementioned status of the US economy, all bets are off that the Fed will move to cut rates for a fourth time at its December meeting. According to data from the CME Group, markets have assigned a feeble 3.7% chance of another quarter point cut to interest rates during December, but are on the fence regarding a resumption of monetary policy easing in mid-2020 – in line with Powell’s comments that “…if developments emerge that cause a material reassessment of our outlook, we would respond accordingly. Policy is not on a preset course.”

The US economy appears to be testing the margins of where full employment and trend growth exist. Powell’s congressional testimony exemplifies this premise and the flexibility that the Fed with apply in the event of a negative shock to the economy coming from either a sustained rise in inflationary pressures or a sharp slowdown in economic growth.

Matthew Eidinger
Fintech Specialist, Dealing operations

 

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