EC Powell’s Hawk Loses Its Lift Even Before Oil

Is the media data dependent? Depends, of course, on what you mean by “dependent”. One year ago, as December 2017 dawned, you couldn’t go a day even a few hours without some mainstream outlet publishing an ode to the LABOR SHORTAGE!!! A full part of the hysteria of the time, the idea of globally synchronized growth last year was started in search of data rather than being derived from it first.

So, as oil prices rose and the major inflation rates came back with them the labor story was attached to the WTI story all with the hope that both were merely the first steps in a much bigger process.

That would include wages. A labor shortage, a real one, would mean fierce competition for workers, a bidding war that benefits pretty much everyone – if the economy is there for it. In 2017, there was so much guessing and stretching data to try and fit it all into globally synchronized growth.

Most data even in the last few months of 2017 wasn’t all that compelling for wages let alone full-blown hysteria. Inflation breakevens rose only somewhat, as did a few curves. The Treasury curve, as eurodollar futures, flattened remarkably as it moved upward. I described a little over a year ago what this had really meant:

In other words, some (and we don’t know how many) Fed officials are worried the Fed is “raising rates” for reasons they don’t really understand, and that missing the explicit inflation target for five and a half years actually does matter. They are doing what they always do even though they don’t really know why. As before, policymakers are in danger of seeing economic strength where it might not (it really doesn’t) exist, not that it risks putting the economy into recession but instead further unmasking how these and other central bankers really don’t know what they are doing on a truly fundamental level.

That’s what markets were pricing, too. Yellen handing off to Powell was counting on oil to indicate economic strength that would allow businesses to compete for scarce workers. If oil was just moving up off a very low bottom and didn’t really move on those perceptions? Bad news for policymakers.

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Gary Anderson 2 weeks ago Contributor's comment

It may not be the real unemployment rate, but Wilbur Ross says businesses are having issues hiring. Are they lying? Is it a massive conspiracy? I believe in lots of conspiracies but this one is hard to peg.