FOMC Came and Went.. We got 25bps
Although this was expected, the context at which the choice was made is what matters. Jerome Powell appeared to engage in quite dovish discourse. Select usage of specific language such as:
Hovering rates.
Neutral rates.
Disinflation phase.
Tapering interest rates.
Lets talk about the "bull case" and if we have a rally on our hands..
Dovish vs Hawkish:
This terminology is referred to as "Dovish". One could understand dovish as:
Supportive of the economy.
Expansion of monetary supply.
Engaging in QE rather than QT.
Dovish is the polar opposite of Hawkish which can be understood as:
Restricting the economy.
Contracting the monetary supply.
Starting QT instead of QE.
Labor Markets:
In the context of alleviating economic pressure, we need to be watching the Labor Markets very closely. We have seen productivity (as measured by GDP) recover from two negative consecutive quarters. When evaluating the labor market, here are some key metrics that the Fed will be watching:
Non Farm Payrolls
Initial/Total Jobless Claims
Average Hourly Earnings
Unemployment Rate
The reason we need to watch the labor market closely is because the Fed has put incredibly large pressure on businesses with debt. Not only do they get less business as retail "feels the pinch", their operation costs have increased, and debt obligations become more expensive to service. The data released today and yesterday shows a robust labor market, despite the economic intervention thus far:
Jobless Claims 183k in January versus 186k in December
Non Farm Payroll at 517k versus 260k last month.
Unemployment rate in January was 3.4% and 3.5% last month
These data points are in confluence with a strong labor market and robust gains suggest that the Federal Reserve may have just finalized the "soft landing"
