The stronger-than-expected U.S. jobs report has created an interesting tug-of-war between the White House, the market, and the Federal Reserve. President Trump wasted little time weighing in, arguing on Truth Social that a “great Jobs Report” should be bullish for stocks, not bearish, emphasizing that economic growth does not automatically translate into inflation. White House NEC Director Kevin Hassett echoed that sentiment, saying the jobs data is not foreshadowing higher inflation and that oil market disruptions are unlikely to materially impact core inflation. Hassett also argued that strong supply-side growth can help prevent runaway price pressures and suggested the Fed has room to be patient, even going so far as to say policymakers have been behind the curve and have had ample room to cut rates.
The market, however, viewed the data differently. Treasury yields surged following the report, with traders focusing on the risk that a resilient labor market and sticky inflation could keep rates elevated for longer. The two year yield up 10 basis points at 4.151%, and the 10 year up six basis points at 4.537%.fff
That repricing weighed on equities, with the brunt of the impact being felt by the NASDAQ index which is down 2% currently at 26294.95. Its price is now running away from its 100 hour moving average at 26569. The price is currently at 26292.
The S&P is testing its 100 hour MA at 7502.51. A move below with momentum would be more bearish.
That leaves newly appointed Fed Chair Kevin Warsh facing an early test. On one side are White House officials arguing that growth is not inflationary and that the Fed should have flexibility to ease policy. On the other side are bond traders who responded to the employment data by pushing yields sharply higher, signaling concerns that inflation pressures may not fade as quickly as hoped. Complicating matters further, the Fed enters its blackout period at the close today ahead of the upcoming FOMC meeting, meaning policymakers will not be able to publicly shape expectations. As a result, markets will be left to interpret the incoming data on their own. Notably, investors have heard very little from Warsh since he became Fed Chair, leaving uncertainty about how he will balance the competing forces of solid growth, stubborn inflation, rising yields, and mounting political pressure. The next FOMC decision may provide the first real insight into the policy framework of the new Fed Chair.
PS Fed comments are not supportive of the Presidents or the NEC’s Hassett.
PSS. Although Warsh wants to please the President for giving him the dream position of Fed Chair, he is also pragmatic enough to not mess around with the rate anytime soon. However, what he eventually has to say, will be dissected as to how dovish or hawkish he is. The Punt is to agree with the other Fed officials and just take the leadership role
The game plan might be to eventually cut, but it might take a defense alighment that shows oil down sharply, inflation falling, inflation expectations weakening. Whether they ignore the job market because of the shift from demographics, immigration policy, greater productivity influencing – and that it is more about inflation and not about managing a slow down in the economy.
This article was written by Greg Michalowski at investinglive.com.