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Real Estate Strategy | Location Intelligence | Data Analytics | Site Selection

Everyone is talking about the Fed…speculating about when will Powell cut rates…by how much…etc…etc… I am not an economist, but I do love dissecting data and trends and it’s pretty fascinating how inversely correlated consumer prices and unemployment rates have been over the very long term. Historical trends suggest that the fed has generally achieved its mandate to balance maximum employment and stable prices. Taking a long term view, it seems like the current spread between unemployment (red line) and CPI trend (blue line) does not warrant drastic cuts in the fed funds rate (green line). What am I missing?

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Ben Witten, you’re not missing anything. In a world in which risks were perfectly balanced between inflation-too-high and employment-too-weak, the Fed’s policy interest rates would be lower than they are now. The easing of inflation enables the Fed to focus more on the labor market and creates space for them to cut rates depending on their evaluation of the relative risks going forward. As you noted, though, the available data, including yesterday’s employment situation, do “not warrant drastic cuts.” My employment forecasting model suggests that the probability of a recession in the next 12 months has jumped to about 61%. Interestingly, the jump wasn’t driven by the weaker-than-expected employment growth. Rather, the Near-Term Forward Spread (analogous to the slope of the yield curve, but more accurate for this purpose) deteriorated during August, reflecting the market’s forecast of a decline in the Fed Funds rate, while single-family housing starts have dropped sharply. My own judgment is that the currently available data do not suggest a movement from 61% to 100%, so I agree with you that the current situation “does not warrant drastic cuts.”

Powell already signaled that they were done with inflation and are laser focused on the labor market now. Last week of labor market data releases: * Job openings per unemployed worker is trending down (still above 1 but it’s on the move). * # jobs created up but not as much as previous months * Underemployment starting to tick up Quarter point cut minimum is all but guaranteed and I’d like to see a half point cut.

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Daniel Uhlemann

Strategy-Analytics-Investments ,, Not everything that can be counted counts, and not everything that counts can be counted." by William Bruce Cameron

3mo

If you ask ChatGPT about reliability of economic indicators during Election years . Also ask for poison pill on Fed and republicans.

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Kevin Shtofman

Global Head of Innovation at Cherre | x Deloitte, EY, Morgan Stanley

3mo

Agree

Ron Oxtal, MAI

Principal at Tropical Valuation Advisory - CRE Valuation Expert Witness

3mo

Ben Witten Please see my latest post for some additional ingredients.

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