Michael Darda, chief economist at Roth Capital Partners, commented on the Federal Reserve's current dilemma regarding interest rate policy amidst persistent inflation and energy shocks, noting that Chairman Kevin Warsh faces a much trickier situation compared to 2018. Darda's analysis, presented on 'Making Money,' suggests that the Fed must carefully navigate decisions to sustain economic growth without making significant policy errors.
Separately, recent data from the Labor Department indicates that unemployment claims, while ticking up slightly to 206,000 last week (from 204,000 the week prior), remain at historically low levels. The four-week average for claims modestly increased to 207,250. The number of people collecting unemployment benefits rose to 1.78 million, an increase of 8,000 from the week before August 22.
Despite the low unemployment rate of 4.1%, employers are not aggressively hiring, leading to what economists describe as a "no-hire, no-fire" labor market. Gross hiring fell 5% to fewer than 5.1 million new jobs in July. Companies, government agencies, and nonprofits together cut 23,000 jobs in July. Employers have added an average of 61,000 jobs per month this year, a significant decrease from the 166,000 monthly jobs created in 2023 and 2024, and well below the 491,000 monthly average during the 2021-2022 hiring boom. Forecasters expect an addition of 65,000 jobs in August and a slight uptick in the unemployment rate to 4.2%.
PIMCO and Seeking Alpha highlighted comments from Fed Chair Kevin Warsh's Jackson Hole speech, which took a hawkish stance and signaled the Fed's consideration of further tightening. Warsh emphasized that inflation must move towards the 2% Personal Consumption Expenditures (PCE) target "clearly and at sufficient speed," suggesting that mere improvement is not enough. The probability of a September rate hike increased to roughly 60% following his remarks. While core PCE inflation is currently at 3.3%, PIMCO expects it to moderate, forecasting 2.4%-2.5% by the end of 2027. PIMCO argues that current inflation is more a "profit-share story" than a "labor-cost story," as unit labor cost growth is around 1% year-over-year while corporate profit margins are at an 80-year high, and labor's share of income has fallen to its lowest level since 1947.
