On the May Jobs Report

390,000 net payrolls is a big beat versus the consensus. Markets are treating it as Fed-unfriendly because it indicates an over-heating economy and gives the Fed room to tighten in order to fight inflation. It only means that as the Fed progresses with its well-expected hiking cycle, that will only be normalizing policy to match a strong economic backdrop. It is expected to happen faster than usual, but then the deep Covid recession of two years ago was the shortest in history – economic time has simply sped up in this cycle. With Powell now safely confirmed as Chair, he has already backed off his pre-confirmation hawkish rhetoric, and announced that he is simply looking for “clear and convincing evidence” that inflation is moderating in order to avoid restrictive policy. The FOMC minutes signal the committee is on the same page. Despite an unusual number of retirements, population growth in young and prime-age cohorts suggests 1.5 million persons who could come back to work.