Good Monday AM from your hometown lender,

Nothing on the agenda regarding economic news for today.

Markets are positioning in front of tomorrow’s CPI report which will be the last big piece of economic and inflation data the Fed gets to see before their meeting next week. Currently markets have both equities and bonds a bit leaking a little bit but nothing substantial. Bitcoin is surging above 71k which admittedly, I don’t understand. Why today’s move? Well I assume Bitcoin is getting another boost from the news that UK regulators are ETF’s just as Bitcoin did when the US regulators made the same decision a month or so ago. I still don’t get it but that’s not uncommon for me.

With no news, I thought to include this primer from Bloomberg on CPI and inflation.

Hello and happy CPI Week. Tomorrow, we get inflation data for February. Expectations are for a 0.3% monthly increase in core (a step down from 0.4% last month) and a 0.4% increase in headline (a step up from 0.3% last month).

Since we don’t really know what the future holds, let’s look backwards for a second.

Last week we got three things that were supportive of the idea that rate cuts are coming into view.
In the JOLTS report, we saw another drop in the quits rate. Quits are now clearly lower than they were pre-Covid, as people hang on to the jobs they have for longer. All things equal, it means lower labor market friction, probably low pay hikes, and just a cooler hiring market overall.

Then in the non-farm payrolls report, we saw decent headline job growth, but January’s huge 353k job gain was revised down to 229k. So the start of the year was not as hot as it initially looked. Meanwhile the unemployment rate bounced from 3.7% to 3.9%. That’s not a fatal jump. It’s still a ways to go before Sahm’s Rule is triggered. But it is an indication of risk to the employment side of the Fed’s mandate.

Meanwhile, in his testimony to Congress, Fed Chairman Jerome Powell reiterated that he still views policy as restrictive and that the FOMC is “not far” from having the confidence to cut rates.

Of course, the idea that monetary policy is restrictive might raise some eyebrows. Stocks are basically at all-time highs. Bitcoin is above $71K this morning. All that’s true, but the Fed doesn’t have a mandate to depress asset prices. So what matters more is whether what’s happening in financial markets flows through to economic activity. Of course it’s certainly possible for these asset prices to swing into a change in the public’s proclivity to consume, or corporations proclivity to invest. But that either will or will not show up in the data. So far it’s not clear if it is having much impact on real-world activity.

Anyway, we’ll learn more tomorrow. For now we see more signs of labor market normalization, and a Fed Chief who views the current stance of monetary policy as restrictive. And just FWIW, if you ask a multi-family housing developer or a company building an EV factory whether rates are restrictive right now, you might get a different answer than if you ask a memecoin trader.

Please remain safe and healthy, make today great!