We’ve been saying for a long time now that the data coming in doesn’t match up with the FED’s decision to lower interest rates. I did some research and found that preemptive lowering doesn’t bode well for the market.
Jobs And Labor
The December jobs report caused a widespread market meltdown today. It showed 265,000 jobs added in December versus the expected 165,000. This was the largest growth since 04/2024. Couple that with the unemployment number shrinking from 4.2% to 4.1% and people geeked out.
They got spooked for a couple reasons. First, high job growth and low unemployment equal higher inflation (generally). Yes, everyone is worried that the inflation number will go back up. Which leads to point two…
How Jobs Data Relates to Inflation
The Fed will possibly not lower interest rates at all in 2025. The “experts” previously predicted 2 to 4 cuts in 2025. But after this report, the “experts” are now saying 1 to 2 max.
This begs the question we’ve been asking all along, WTAF was the rate cut in the first place??
I may be wrong, but me thinks if the Fed has to raise the rates to combat rising inflation, the markets will tank — HARD. The financial bubble we’re in will pop and we could be looking at a pretty steep recession. I’m not trying to scare you, just spitting out my theory and why I’ve been so adamant about not cutting the rates too early.
The average American consumer cannot take any rate hikes, they are in too much debt. It is almost to the point where we are not hoping for rate cuts, we are hoping for no rate hikes. Again there is a real possibility that rate hikes could be coming in 2025, so prepare now while you can.
Pricing Data
The PPI inflation report, which tracks the prices that companies see, “only” rose 0.2% for December. This was half of what the “experts” projected. YOY prices rose “only” 3.3% instead of the 3.5% the “experts” projected.
The CPI showed a 0.4% increase in prices for December, which one would think is not good. The YOY data showed a rise of 2.9%.
These numbers don’t make me feel good about where inflation is heading in 2025, yet somehow this was received by investors as good news.
Sticky is the word that’s being thrown around when it comes to inflation, instead of saying what needs to be said, that interest rates should not have been cut, and should not be cut further.
These numbers show that inflation is still not even close to what the Fed wants the numbers to be. And if we dig deeper into the numbers, there are some warning signs.
Food was up 2.5% YOY, shelter prices were up 4.6% YOY, transportation services were up 7.3% YOY, eggs were up 36.8% YOY and auto insurance was up 11.3% YOY. Couple this with the fact that workers wages only increased 1% YOY.
SO things people pay for each month were up a lot and wages didn’t increase much at all. This appears to me that the consumer will take on more and more debt to pay for the things they need.
I don’t take this report as positive at all, BUT the market popped off this morning on this news. I’ve given up on trying to understand why investors react the way they do. But for you reading this, these numbers are worrisome.
Want Market and Economic Updates Sent Right To Your Inbox?
We only post these updates when there’s a lot to talk about, but if want weekly economic updates, get on our free Investing IINsights email list. You’ll also get our portfolio updates and my top hand picked investment ideas.
