A week ago Wednesday, Federal Reserve Chairman Jerome Powell said two important things that caused the Dow Jones industrial average to rally more than 600 points.
One, he said that interest rates were close to neutral. This was a change from statements Powell made not long ago when he said they were far from neutral, which is the point at which interest rates don’t help or hurt the economy.
Two, Powell also said that the decision on interest rates would be data-dependent. That means even though rates may be close to neither helping nor hurting the economy, that view could change with every new piece of economic data that’s released.
With that in mind, Friday is going to be a big day for Wall Street if the latest monthly employment data come in either too weak or too strong.
The impression that Powell gave last week will be reinforced if the Labor Department reports a disappointing number of jobs created in November. And Powell’s words will be thrashed if the report comes in too strong on either the number of jobs created or the growth in wages.
What would be considered too strong? Wall Street is expecting growth of about 200,000 jobs and a jobless rate of 3.7 percent.
There were 250,000 jobs created in October, so the prediction is that November saw a decline in employment growth. The jobless rate was at 3.7 percent in October, so no change is expected there.
The “experts” are also expecting growth of 3 cents in hourly wages in the November report, which would be lower than the growth of 5 cents reported in October.
Because of all the guesswork that goes into this monthly report, I don’t hold much faith that it actually gives a snapshot of what the economy is doing in any given time. But that’s just me.
Wall Street takes this stuff very seriously because it provides traders with a reason to push stock and bond prices up, or drag them down.
December’s figure will be the first test of how seriously Wall Street will take Powell’s declaration that the Fed is now dependent on data for its interest-rate decisions.
But one thing is almost certain — no matter how bad the November job figure might be, Powell will raise interest rates at the Fed meeting in the middle of December. The other certainty: President Trump won’t be happy.
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