Careful What You Wish For

The key economic report was one that is normally of little interest to most market practitioners.  The Preliminary Benchmark Payrolls Revision arrived at 10AM, EDT 9 September 2025 and showed that job growth in the US was even weaker than thought.  While that figure does nothing to dampen the FOMC’s likelihood of cutting rates at next week’s meeting, it doesn’t materially bolster it either.

Chair Powell’s recent Jackson Hole speech certainly showed a shift in his mindset.  To sum it up briefly, his stance moved from “give me reasons why we need to cut rates” to “give me reasons why we shouldn’t cut rates”.  Rate cut expectations were already firmly in place – they were actually higher in the week prior to his address than immediately after – but market concerns were assuaged somewhat by the Chair’s apparent willingness to prioritize bolstering the “maximum stable employment” portion of the dual mandate over concerns about “stable prices”. 

Thus, this morning’s announced preliminary revision of -911,000 jobs might have seemed like welcome news to those hoping for aggressive cuts.  But they weren’t necessarily taken that way.  Even though all economic data is somewhat backwards looking – we’re always looking at figures compiled in the prior week or month – this number is especially so.  The period in question was from April 2024 through March 2025, meaning it is 6-18 months ago.  Indeed, that revision, if it holds, would wipe out about half the announced job creation in that period, but it is not necessarily relevant to today’s labor picture.  It certainly doesn’t brighten it, though.

Given the age and magnitude of the revision, we have to question whether the Fed is already behind the curve when it comes to labor.  If that is the case, lowering interest rates by a few basis points might be insufficient to offer immediate results.  The follow-through from rate cuts to hiring is indirect at best.  Yes, companies should find a more favorable climate for borrowing, expansion, and the like, but it is difficult to expect that hordes of them will go out and hire workers whether the first cut is 25 or 50 basis points.  Rate cuts send a valuable signal to employers but are not necessarily sufficient incentive to change their longer-term behavior.

We also need to wonder if investors’ enthusiasm for cuts is obscuring the other message that Powell delivered in Wyoming.  At the time, we noted that the FOMC’s Statement on Longer Run Goals more closely anchored its inflation target to 2%, saying:

The Committee reaffirms its judgment that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve’s statutory maximum employment and price stability mandates. The Committee judges that longer-term inflation expectations that are well anchored at 2 percent foster price stability and moderate long-term interest rates and enhance the Committee’s ability to promote maximum employment in the face of significant economic disturbances.

Two things are important here.  First, they view stable prices as a key to promoting the employment portion of the dual mandate.  One can assert that even if implied otherwise, price stability outweighs stable employment.  Second, price gains have been steadily above 2%.  They’re not far above 2%, but they are closer to 3% than 2% and as we saw with Core PCE, they’re inching higher, not lower.  Even if this week’s PPI and CPI reports come in as expected, they would be above the FOMC’s target.  That might not be enough to forestall a cut next week but could dampen the committee’s enthusiasm for a succession of rapid cuts thereafter. 

Thus, if you’re hoping for an economy weak enough to justify massive rate cuts, be careful what you wish for.  Stock investors should always root for at least a decent, if not great economy.