Investors are preparing for Friday's jobs report, which comes ahead of next week's Federal Open Market Committee Meeting (FOMC). The rate-cutting cycle has also started, led by the Bank of Canada and the European Central Bank. Former Kansas City Federal Reserve president Esther George joins Market Domination Overtime to discuss monetary policy and key economic indicators.

George highlights that the jobs report will be "very important" to the FOMC because its dual mandate concerns both inflation and unemployment. Inflation is still the Fed's key indicator because inflation has remained above the central bank's target, the former Kansas City Fed president adds. On the ECB decision, George notes that the rate cut reflects the fact that inflation was "really a global phenomenon" with distinct regional dynamics. In Europe, she says, the ECB was attentive to inflation dynamics pertaining to energy costs.

The "good news" for the economy, George states, is that consumer spending and the job market are seeing "welcome moderation." She notes that she will continue to monitor consumer confidence moving forward.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination Overtime.

This article was written by Gabriel Roy

Video Transcript

Investors waiting on the job support tomorrow.

And of course, it comes ahead of the Federal Reserve decision next week.

The backdrop for central banks around the world, the rate cutting cycle has started led by the Bank of Canada and the European Central Bank.

Joining us now is former Kansas City Federal Reserve President and Ceo Esther George.

Thanks so much for being here.

Appreciate it.

Nice to be with you.

So let's talk first about the jobs report here and sort of put it in context.

It seems to me that the fed is still really focusing more on the inflation data.

But what should be sort of the read through from something like the jobs report?

Well, of course, the jobs report is gonna be very important to this committee because they do have a dual mandate.

They focus both on inflation and on unemployment.

But this committee has been quite clear for some time because they that we've had an inflation problem in the country.

And right now, even though inflation has come down quite dramatically over uh the last year, it remains well above this committee's target.

So I think inflation is still the key uh indicator right now, even though both of those things, I think pretty soon will be coming into better balance for what they're looking at.

I'd like to get your thoughts and comments on the ECB decision this morning European Central Bank cut rates by 25 basis points as expected.

Uh But they were the first to do it here among the developed countries.

Um And it's not often, it's been a long time.

Another guest pointed out it's been uh years, decades since the ECB kind of led the charge that way on the way down.

What do you read into this?

Uh just as a former central banker yourself?

Yeah, I think, you know, first of all, I think about how inflation has really been a global phenomenon coming out of that pandemic with the supply shock, we experienced the world experienced an inflation problem and each country's dynamics are a little bit different as we have come through that period.

And so in the case of the ECB, uh you look at Europe was really affected more around its inflation dynamics with energy, for example.

And so as they make their assessment of confidence in where they are in their inflation fight, obviously, they signaled sooner and earlier that they would be in a position to cut.

We saw that today.

I think the same is true with Bank of Canada their dynamics a little bit different.

And so the Federal Reserve um is in a place right now where given its economy, given the amount of fiscal stimulus that is there, how the economy is performing, I think has indicated they're at a peak interest rate right now and we'll be looking to the future of where those rate cuts come and are really in a wait and see mode right now.

And I think that will probably be true as they come out of their meeting next week.

Well, and you um just said a few moments ago that you are pretty confident that things are coming back into a better balance.

It feels as though the the data recently has been a little less even or at least less clear that it was all going in the same direction in terms of moderating inflation while the economy was holding up pretty well.

So I I'm curious what data points you're focusing on that gives you that confidence.

So I have for some time been thinking a lot about consumer spending and the job market.

And I think in both of those, we are, we are seeing some moderation.

The good news is the economy looks uh pretty, pretty good right now that there is growth uh consumers, although some of the retail numbers have come in slower are still spending, the employment rate remains low.

But there are some factors around the job market that show it is beginning to come into better balance as it relates to the quits rates.

For example, the number of job openings, businesses reporting that they're having an easier time hiring all of those things, I think will be important to see where they come out tomorrow to see where the may data uh positions the job market and particularly with wages.

So all of those indicators show, I think welcome moderation, whether it is enough to continue the progress of inflation uh down in a timely fashion in a way that this fed is looking for, I think is really too early to tell exactly when that's gonna come about.

Looking past the jobs report and and also inflation reports.

What other economic reports do you focus on to try and give you an overview of where we are where the American consumer is where the American economy is.

Well, I think one thing that's always interesting to look at is consumer confidence and how people feel about their current situation.

And we know that inflation has really clouded how Americans feel about uh their prospects even though we have really historically high employment in the country.

So I think consumers as they judge their optimism uh or lack of that uh on the economy does have the potential to affect how they spend when they begin to pull back.

So I think looking at how consumers feel, given that that is such a large part of how the economy performs is always important.

Looking at manufacturing, how are businesses feeling about uh their prospects in terms of capital investment and other things and of course, the other indicator I think so important right now with inflation at the levels it's at is to see what the expectations are both from the market and from households about the future of inflation.

So all of those indicators I think right now are in play in terms of providing really a a totality as the fed chairman has talked about in data that the committee will be considering as they look and see whether their policy settings continue to be appropriate.

Um I share your sort of fascination with where the consumer is going here and it seems as though there have been a number of different elements that have um combined to support the consumer, particularly higher end consumers.

One of those elements ironically is the fact that rates are where they are because there's a lot of money in money market funds, for example, that folks are then getting a return on stocks are rallying, which is also helping uh wealthier Americans.

So there has been this idea floated that cutting rates ironically might reduce that spending power of the wealthiest cohort.

Do you think that that holds water that argument?

Well, you have to remember and this is, this is true.

Always the FED has one blunt instrument called interest rates and it affects different parts of the economy in different ways.

And of course, that interest rate as a macro tool is designed to suppress demand.

And that's why right now, I think you could argue in some sectors of the economy, people are feeling the pinch of those higher interest rates even as other parts, as you noted are maybe benefiting in other ways from that.

And that is, that is always true.

I think in terms of how this interest rate policy lands what will be important for the fed though is in a macro sense, they will have to see the economy slow in a way that allows inflation to continue to come down.

And I think there are reasons to think that could happen.

I think first quarter reminded us it may not be a straight line in terms of how that inflation comes down.

So keeping um a restrictive policy, being confident that that policy is going to have the desired macro outcome um is really the goal for this committee.

All right, it is a big, big economy with lots of cohorts.

That's my takeaway here.

Really appreciate your time.

Thank you, Esther George.

Thank you.