TLDR;
This video discusses the latest CPI and jobless claims data and their potential impact on the Federal Reserve's monetary policy. The CPI data is largely in line with expectations, but a spike in jobless claims, particularly in Texas, is raising concerns. The discussion also touches on the debate around the Fed's next moves, with some arguing for a rate cut due to weak data and others cautioning against it given the strong economy and high equity prices.
- CPI data aligns with expectations, but jobless claims spike raises concerns.
- Debate on whether the Fed should cut rates due to weak data.
- Strong economy and high equity prices complicate the decision.
CPI and Initial Reactions [0:02]
The Consumer Price Index (CPI) increased by 0.4%, slightly above the estimated 0.3%. Real earnings decreased by 0.1% due to inflation. Year-over-year headline CPI was 2.9%, and core CPI (excluding food and energy) was 3.1%, both in line with expectations. Food prices rose by 0.5%, and owner equivalent rent increased by 0.4%, indicating some inflationary pressure. The bond market reacted with a slight decline, suggesting that the market views the inflation numbers as largely in line with expectations.
Jobless Claims and Market Impact [1:21]
Initial jobless claims rose to 263,000, the highest since October 2021. This figure is significantly above the 250,000 mark, which hasn't been breached since October 2024. The increase in jobless claims is a potential catalyst for the Fed fund futures market to price in a 50 basis point rate cut. The 10-year Treasury yield is at 4%, and the market is waiting for it to drop below this level.
Treasury Yields and Market Technicals [2:32]
The discussion touches on the 10-year Treasury yield, with some market participants betting on it spending more time below 4%. However, debt, deficits, and the yield curve suggest that yields may remain stubborn. The focus should be on the 30-year versus 10-year spread and the 5-year versus 10-year spread, as these indicate the premium between these maturities.
Jobless Claims Analysis and Data Accuracy [3:43]
There was a spike of 15,000 in Texas jobless claims, possibly due to a specific event in local education. Excluding this spike makes the numbers look less drastic, but traders generally consider all data. The accuracy of these numbers is questioned, and revisions are common. The Treasury Secretary's comments on the need to reform the Fed due to unreliable data are noted.
Monetary Policy and Market Conditions [4:47]
Despite being an inflation hawk, a 50 basis point rate cut may be warranted given the producer price index (PPI) numbers and lack of pass-through. The significant revision in job numbers (911,000 jobs taken away) also changes the outlook. The current economic conditions, including record prices in equities, are contrasted with the logic previously used by J. Paul.
Debate on Fed's Next Move [5:57]
With GDP running at a tracking forecast of over 3% and the stock market near all-time highs, the debate centers on how far the Fed should cut rates. The probability of a second and third rate cut this year has increased. The discussion questions how far the Fed should move from a neutral stance, given the uncertainty around what neutral actually is. The right break-even rate for the job market, considering changes in immigration, is also debated.