Skip: The Fed’s new jargonistic term
Yippee, we have a new bit of Fed jargon to play with. As we go into the monthly US labour market report, headlined by the nonfarm payroll numbers although containing a lot more information than simply the figure which reflects how many jobs have been gained or lost – consensus for today’s release of the May numbers is at 180,000 job creations – the question remains: “Will they or won’t they?”.
The Fed has indicated that, despite all the signs that a recession might be on the way, as it has been for a very long time although it has yet to actually manifest itself, its tightening cycle is not yet over. It must be nearly a year now since the word “pivot” entered the monetary policy vocabulary but as said pivot is not yet upon us and as inflation has in the eyes of the Fed still to be properly tamed, rates are not set to be lowered. But they are, given the many less bullish economic indicators – employment is very much the outlier – unlikely to be raised at the next FOMC meeting on June 14th. Thus, enter stage left, the new jargonistic term of “skip”. Yes, by some miraculously new invention in monetary policy, the Fed might actually choose to neither tighten nor ease and that, for reasons known only to the media, will henceforth, or until a new piece of jargon can be created, be referred to as a skip.
The media are not my best friend at the moment. Last evening I was watching the news on the TV. I rarely do that anymore as I am fed up with Phillip Schofield, a disgraced TV anchor, taking all the headlines – and I mean the first nine minutes of a ten minute news cast – when the world around us is in such transition. The sloppiness of BBC is turning this once great broadcaster into a joke. Thus it was that it announced yesterday that the debt ceiling bill had been enacted and that all was well in American government finance. I don’t know where the news editor in question learnt his or her craft but for over 200 years American legislation has required promulgation by both houses of Congress, followed by the President’s signature. Until the small hours of this morning our time when the Senate passed the bill, it had only negotiated the first of the three hurdles and even with the 63 to 36 vote in the upper house, until Joe Biden has added his scribble it is not the law of the land. But who cares about such minor constitutional details as long as there’s a rainbow flag to be seen on the screen?
There was something particularly satisfactory about the Senate vote. I’m not going to fall for the old one about the grownups being back in charge but the vote stands out for not having been conducted along strict party lines. For the first time in a long time the wellbeing of the American people, the American economy and by extension the economy of much of the rest of the world were put ahead of partisan rhetoric and, although far from unanimous, the outcome of the vote saw senators from both sides come together and converge on the middle ground. This might prove to have been a rare occurrence and it might not be repeated any too soon over such a contentions issue but in the nick of time common sense has ruled and it is to be appreciated, if not celebrated.
So the Fed is likely to opt to leave rates unchanged as it continues to assess the inconsistent news emanating from the economy. Not even the ISM Manufacturing PMIs give a clear picture with the actual PMI at a softish 46.9. This is a diffusion index where anything above 50 indicates expansion and below 50 points to contraction. At 46.9 it perfectly clearly flags contraction although the employment component is now back in expansionary territory at 51.4. That said, employment has historically been regarded as a lagging indicator although in the more recent past it has defied that convention and the monthly employment report has in many ways done more to confuse than to clarify. Thus markets will have to decide whether, irrespective, to take today’s figures seriously or to dismiss them as no longer being the be all and end all of FOMC thinking.
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