Macro Monkey Says
Going Global
The latest viral trend is taking over the world: 25bps increase to base rates in economies across the globe. This has been going on for a good few months now, but the newfound messaging across the pond has reached a new level of lockstep.
Yesterday, the ECB followed in JPow’s beautiful, silver-fox shoes and raised the Eurozone’s Fed funds rate equivalent by 25bps to a range of 3.25-3.75%.
As if we didn’t know this before, central banks around the world have been hiking rates like no tomorrow in an attempt to curb stomp inflation and catch a battery charge in the meantime. Given the egregiously delayed response to monetary policy moves like 25bps rate hikes, it’s often difficult for the Federal Reserve to get any kind of a pulse on the macro picture. And right now seems to be far from an exception.
We get jobs data at 8:30 am today for the month of April, surely to be a banger for markets on the day, although the direction of the bang is questionable. Yesterday, preliminary labor market numbers suggested a cooling labor market as hiring barely budged, jobless claims continued to trend higher, and the number of job openings reached nearly a 2-year low.
At the same time, we learned that U.S. worker productivity declined 2.7% for the first quarter of 2023, far worse than expectations and well below the prior reading of 1.7% growth.
Productivity is just output divided by time. Falling productivity means we’re producing less value per hour worked, an inflationary pressure driving a demand-pull inflationary possibility if market demand holds up.
Given the resilience of consumer spending despite recent slowdowns in wage growth for workers, demand has proven resilient so far this year. The point is, to a certain degree, economic fundamentals are pointing, pushing, and pulling in opposite directions. Once again, we wish JPow the best in what must be a real crap chute of a job.
We’ll get the next decision on rates in mid-June, but at least that gives us plenty of time to digest the messaging from central banks. Luckily the ECB’s messaging was not only aligned with the Federal Reserve’s but far more direct, with Chair Christine Lagarde showing JPow how to say it with your chest when she stated, “We have more ground to cover, and we are not pausing, that is extremely clear.”
If that’s not a subtweet at what JPow probably actually wanted to say, I don’t know what is. Either way, we’ll see how that one works out.
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