Major Critical Development: Powell, Fed, Wages
A major critical development came from the Fed’s last Federal Open Market Committee (FOMC) gathering. Not only did the ‘Powell Fed’ cement its dovish stance as its default position, but the Federal Reserve chairman also made it clear there will not be policy decisions that derail the economy based on past precedents and the old rule book. This is great news for long-suffering Americans that have gone more than a decade without noticeable wage increases.
In February 2018, the January jobs report showed a 2.9% uptick in wages, and Wall Street sold everything, sending the Dow off 666 points. Fast forward to the February 2019 jobs report, which showed overall wage growth at 3.40%. The Fed will no longer hike rates when wages grow 3.0% or more, is so important.
That was just the surface of good news:
Jay Powell made the point there is a difference between wage inflation and price inflation, and until the latter starts to surge, the Fed will hold off on ruining this economic Renaissance.
The Federal Reserve isn’t going to raise rates in 2019, and that is monumental news for investors and for workers. This is a rare moment when their actions benefit Main Street and Wall Street.
JOLTS & Quits
All economic data is a rearview mirror to a degree. The January Jobs Opening (JOLTS) report is even more backward-looking, but it gives great insight into the economy and underscores assumptions about consumers.
In January, the number of job openings was back at an all-time high level. The 7.581 million openings were well above the consensus estimate of 7.31 million.
I was more impressed with quits, which are well above pre-recession levels. There were 3.5 million quits against 1.7 million layoffs and separations. This trend will keep upward pressure on wages. Remember: under Janet Yellen, a surge in quits would have been a reason to hike rates.
The 2.3% rate for quits is the highest since May 2001 (2.3%) and April 2001 (2.4%), but this shouldn’t be a harbinger of an economic collapse without central bank panic and the backdrop of a super equity bubble.
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