Barring a major surprise in the next two weeks, it seems that Friday’s US jobs report has put the Federal Reserve on track for the first interest rate increase since the Fed funds rate hit zero in 2008.
This is the culmination of months build up and speculation from analysts, economists, and everyone in the market. It seems to be the moment when many pundits and economists can say “finally.”
But, one economist isn’t quite as giddy about the data as her peers.
“At this point, however the Fed appears focused on their expectations of future growth rather than the current state of the economy,” said Lindsey Piegza, chief economist at Stifel.
Piegza has been sceptical of the Fed’s seeming intention to raise rates for a while, and even after the jobs report, she remains firmly in the anti-rate hike camp.
“A strong employment report this morning, at least against the new, lowered bar of judgment whereby anything over 200k is considered ‘solid’,” wrote Piegza in a note to clients Friday. “Furthermore, coupled with a larger-than-expected decline in the service activity index earlier this week, a multi-month low in service hiring, remains a sizable red flag marring the beauty of the November headline rise.”
Even outside of jobs, Piegza thinks that the economy is not steady enough for a hike. She calls the 2% GDP growth “stagnant.” Additionally, she notes that while the service economy is leading for now, it usually drops off when manufacturing struggles as it is now.
Finally, Piegza pointed to the Fed’s own language as a repudiation of the move. Here’s Piegza (emphasis ours):
“From the Fed’s perspective, despite underlying concerns evident in the details, the timing of the November report could not have been better, resulting in two back-to-back “solid” headline increases in employment just before the key December FOMC meeting. Of course, after 83 months of near-zero interest rate policy should it really come down to one or two reports? After all, it wasn’t but just last meeting that the Committee downgraded their assessment of job creation from ‘solid’ to ‘slow.’ Furthermore, policymakers have been classifying the current activity level of the economy as ‘moderate’ for the past six months.”
Piegza has also previously pointed out that inflation is running well below the Fed’s mandate of 2%.
The Federal Open Market Committee is meeting December 15 and 16.