Opinion

Change Happens Fast

NFP missed this morning and futures initially seemed positive on the news. Why? Because it gives excuses for the Fed to slow down their 2019 rate hike schedule. Still running negative real rates 10 years following the financial crisis we’ve seemingly gone from Janet Yellen seeing risk of the economy overheating to “Federal Reserve officials considering whether to signal a new wait-and-see approach after a likely interest-rate increase at their meeting in December, which could slow down the pace of rate increases next year” in just a couple of months.

Change happens fast.

No, the world went from global synchronized growth expectations in January 2018 to a global synchronized slowdown in December 2018. What changed? Well, asset prices dropping all over the place for one. Slowing growth everywhere, elective trade war policies to boot heightening uncertainty and rosy Wall Street predictions have failed to materialize.

And hence the Fed is back to its default position: Scared and uncertain:  “They are becoming less sure how fast they will need to act or how far they will need to go, and they want to assess how the economy is holding up under moves they have already made“.

Translated: They don’t have a clue what to do.

Why is anybody surprised? Seriously?

We’ve long known this business cycle is long in the tooth. Unemployment rate at 3.7% forever? There is no history to suggest this could ever happen, there never was.

Indeed history suggests the precise opposite and that is low unemployment cycles tend to come to a rather sudden violent end and recessions follow soon after:

Change happens fast.

As I suggested recently on twitter:

And already we’re seeing the announcements creeping in:

Don’t think this is the end, it’s only the beginning especially as companies will have to fight favorable earnings comparisons next year. They’ll find efficiencies. And it’s not by saving money on buybacks or executive perks. It’s jobs.

But the chart above already tells you the script.

We need to be attuned to…the possibility that the U.S. economy could look very different in the first quarter, first half of 2019 than it does now,said Dallas Fed President Robert Kaplan in an interview Thursday.

See the Fed knows the truth: Change happens fast.


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