Are Lower Rates the Answer to Slower Job Growth?
With goods inflation falling quickly and the price of oil approaching 60 dollars a barrel, inflation seemingly is no longer a threat and the Fed’s new focus is jobs. Job growth is definitely slowing. To put things in perspective, from 2010 to 2019, the US economy added approximately 150 thousand new jobs per month. Over the past three months, the US economy has added approximately 120 thousand per month.
The Fed has given the markets every reason to believe that easing will start in September. With inflation normalizing and job growth falling, the markets believe the Fed will lower the top Fed Funds rate from 5.50 to 3.00 over the next 12 months and have priced this easing into the prices of fixed income securities, especially in securities maturing in less than five years.
We are not sure that lowering rates will affect consumer’s consumption patterns. As one consumer company executive suggested, consumer consumption is ‘normalizing’ back to pre-covid levels. Interest rate levels will not have much impact on this trend, but inflation will. The fact that goods cost more, means consumers can afford less.
