Newscasts - Market Insight: ‘This is what a soft landing looks like’

First American Financial

01/11/2024 17:13

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Source: 'Reuters - Business videos'

Description: U.S. Federal Reserve policymakers are faced with a mixed economic
picture when they meet next week, after hiring advanced at the slowest pace
since 2020 in October. First American’s Mark Fleming said the chance of
continued interest rate cuts is ‘probably a good bet’.
Short Link: https://refini.tv/3ArP4GH

Video Transcript:

Payrolls, polls, and policymakers, a monumental week ahead for the world's
largest economy. Welcome to Market Insight. I'm Peter Devlin. Voters in the US
are heading to the polls on Tuesday to pick their next president in a too
close to call election. But says the US election cycle that it's already
rattled asset prices it finally comes to ahead. Federal Reserve kicks off its
November meeting. Today's non-farm payrolls offered the final clues. But how
will Chairman Jerome Powell navigate through uncertain waters? Well, joining
me today to talk about all that is Mark Fleming, Chief Economist at First
American. Welcome, Mark. Thanks very much for joining us. So, let's start with
the NFP print today, US hiring advanced at the slowest pace since 2020 in
October, adding only 12,000 jobs. So, should we dismiss this print in a month
distorted by severe hurricanes?

I think if you take the markets word for it, they're certainly not too worried
about it. I mean, there's really no belief that it truly is 12,000 and it's
something certainly closer to where we were before. One month does not make an
overall trend and the trend is a softening labor market, certainly not to this
extent. And it's always been the case that hurricanes, natural disasters,
strikes can heavily influence anyone monthly number.

So, let's just look at non-farm as a whole as well. September's print was
downwardly revised to 223,000 in September, that was another month of hefty
revisions. Is it time to question the measures of validity as a whole for the
labor market?

August was also downgraded, so the combination of August and September is over
100,000 less jobs than originally thought. Again, the cooling trend, and
that's common downward revisions, upward revisions in general, whether up or
down are common. I think it is challenging these days, particularly with
natural disasters to get good reads. But one month should never be what we
base ultimate outcomes on. It's much more the trends and if there were a
number that I would look at even more closely its wage growth because that's
the dynamic of the demand and supply combination in the labor market and
that's still relatively strong. So, the labor market is cooling, but it's
certainly not collapsing.

So, let's look at the rest of the data this week, inflation picking up while
the economy growing at a solid pace in the third quarter. Is it time to pare
back policy easing bets?

I think that's the question that the Fed meeting members are going to have to
address next week. We're getting very mixed signals, labor market cooling, GDP
is strong, inflation is coming down, but maybe not fast enough. There's sort
of a big balancing act there that they have to deal with next week. And so,
it's not like every number is trending in the right direction and it's never
the case that any one number is what a decision is made upon.

So, let's look ahead to next week as well for the Fed meeting, is a
quarter-point cuts virtually a lock and what are you expecting?

If you take the markets suggestion that the odds of quarter-point cut are
something like 98% plus for next week, so certainly the market believes that
it's an almost certainty. And I think the Fed's, like I said, going to have to
parse through all those numbers, but I would agree with the market, the
likelihood of a continuation of the cuts is probably a good bet at this point.
There's nothing really to suggest that we should certainly pause. This is what
a soft landing looks like. You would have to basically accelerate cuts, if
there were a recession and there's nothing saying that it would go the other
way. So yes, I think. It's a good bet.

So, of course, who will be at the helm of the world's biggest economy will
have wide-ranging consequences for the financial markets. Mark, I do have to
ask you this. Will the election play into Fed's decision making?

I honestly take the Fed's word for it when they say that they're independent
and data driven. I think that's their motivation, not election decisions or
the likelihood of one party or the other in office.

Mark Fleming of First American, many thanks for your thoughts. And that's
Market Insight