On the December Jobs Report, and How the Fed is Trumping Itself
https://trendmacro.com/system/files/reports/20250110trendmacroluskin-eg.pdf
Friday, January 10, 2025
The Fed doesn’t care about jobs now. Instead it is diving down a Trump tariff rabbit-hole.
US Macro
Federal Reserve
256,000 net payrolls is a beat, and further confirmation of a productivity-led post-pandemic boom. Stronger gains in the "Household Survey" reverse two months of contradiction with payrolls. The Fed is no longer worried about either labor market weakness or tightness. They have moved on to worrying about the inflationary effects of tariffs, holding present policy tighter than it would be otherwise. Despite Powell's denial of this at the December FOMC, the minutes of the meeting reveal that both staff and participants have "placeholders" in their forecasts – assumptions here and now that there will be tariffs, and moreover that they will be inflationary. They have no idea whether or not there will be tariffs, and they seem ignorant of the fact that when tariffs were imposed in 2018 and 2019 inflation fell. We think the policy posture is generally correct, but only by accident. Today's risk-off reaction is ripe for reversal.