Lee notes that the Federal Reserve's decision extends beyond just the one report, but "all of the data in its totality." While acknowledging that the hot job openings data was surprising, she says the overall report shows little to no change in labor market conditions, leading her to believe there will be "no impact" on the Federal Reserve's current outlook. However, she places "more weight" on the Fed's communication rather than the "figures themselves."
Lee believes the Fed's inflation target is "coming in[to] sight," but the question remains about how long it will take to achieve it. She notes that the Fed doesn't get "too excited" over a couple of inflation prints leaning in one direction or the other. Instead, it may take three to four consecutive good inflation prints for the Fed to feel "comfortable" begin a rate-cutting cycle.
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Editor's note: This article was written by Angel Smith
Video Transcript
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MADISON MILLS: Job openings coming in at $8.76 million for the month of February. That is above the $8.73 million that was expected. For more on this, we have Jennifer Lee, BMO Capital Markets senior economist.
Thank you so much for being here with us, Jennifer. We really appreciate it. It seems like the market was already kind of digesting and using the ISM data from yesterday as a move towards the downside or at least as a potential catalyst towards the downside. Help me understand whether or not that is also going to have an impact on the Fed. How big of a deal is this latest ISM data going to be come the next Fed meeting?
JESSICA LEE: So good morning and thank you for having me on. I mean, I think it's not just the ISM. It's all of the data, the data in its totality that will have an impact on the Federal Reserve. But I've got to say after the job openings data this morning, my first reaction, to be honest, was to say what, they rose again? And that's a reaction I haven't had in a few months.
But overall, it was a very mixed report. It was all in the public sector side. The private sector was actually cutting back. By industry, I believe the sector was, on an industry basis, it was a little bit mixed.
So overall, it still shows that not a huge change in the labor market. And labor market conditions, probably no impact of anything for what the Fed is thinking or what they're thinking already. So I think, it's just going to be again the totality of the data.
ISM numbers, by the way, as you're mentioning, were also a little bit of a surprise expanding for the first time in months. And even the survey respondents' comments were very positive, I think, for the most part. And I tend to put a little bit more weight on what they're actually saying than sometimes the figures themselves.
JARED BLIKRE: We've talked a lot today, specifically on this program, about some of the labor market numbers that we got today and also looking ahead to Friday. I'm also interested in what you're thinking about inflation. The next CPI report comes out before PCE.
We've seen a lot of indicators and now the year-over-year numbers have kind of stalled out. We've seen supercore x housing that is maintained above 4%, I believe. Just when do you expect to have some kind of definitive answer on the Fed's inflation target? Is the 2% ever going to be in sight or are we at risk of accelerating to the upside once again?
JESSICA LEE: I believe it is going to be coming in sight. It's just the question is, how long is it going to take? If it starts to accelerate again or accelerate again, I think that's where we're going to have some other issues.
But as Fed Chair Powell said, they're not going to get too excited about a couple of months of sticky inflation numbers like January and February, just like they didn't get too excited over a couple of months of better inflation reports last year. So I think we're going to need at least probably like three-- I'm going say three or four perhaps better inflation data to make the Fed more comfortable, more confident that inflation is getting back to that 2% rate. And that, kind of, falls in nicely with our expectation for the first Fed rate cut to come in July. Although sometimes when I'm looking at this data, sometimes I'm thinking they could be waiting a little bit further, a little bit later than that. But we'll have to see how that fares.
MADISON MILLS: Did today's JOLTS data change that narrative for you?
JESSICA LEE: No. Frankly, no. I mean, plus, as you mentioned earlier, just at the start of the hour that this is also lagged data. But overall, you know, yes, openings were up, but it was all public sector. It was mixed among the industries themselves.
But it shows-- I mean Fed Chair Powell has had like a whole host of phrases that he's been using to describe the labor market. What did he say recently? Like, he doesn't see cracks in the labor market. It's still strong. It's coming into better balance, which is another way to say that everything is equaling out.
So I don't think he's as worried about the job market. And he probably-- and again, of course, he wants it to cool off a little bit more, but he's not worried about having it decelerate sharply. He's probably more interested in the overall inflation picture, especially on the PCE and the core PCE deflator.
JARED BLIKRE: Nice shout out to the Powell phrasebook there. I want to talk about another central bank and that's the Bank of Japan. You're noting in your note to us here about forex, foreign exchange, about the move that the yen has made weakening to the lowest or weakest level against the dollar, something like 30 to 40 years.
Now, the BOJ recently raised rates, but it seems the market is calling the BOJ's bluff. Whenever they say something, we get a little bit of a market reaction, but it's quickly walked back here. So how do you see the situation with the BOJ? How does that, I guess, develop?
JESSICA LEE: That is a tough one. They finally came up and finally raised rates as we all know at this point. Unfortunately, they, sort of, washed it all out by saying that rates are going to-- or policy is going to stay accommodative for a long time. And by the way, we're still buying JGBs.
Plus, I think for the minutes or from the summary of opinions, it looked like a lot of the members, even though they all pushed for this rate hike, they also want to make sure that everyone knows that they're going to stay accommodative for a long time. So they, sort of, gave with one hand and took away with the other. And that did not help the currency at all.
And, of course, now you've got the Fed still dealing with a strong economy, a very resilient economy. And it looks like, you know-- and then so now this potential for maybe the Fed could have fewer rate hikes and push it off a little bit further into the distance. So of course, that's going to boost the US dollar and with the Bank of Japan and the Ministry of Finance-- even with the Ministry of finance jawboning and saying that we're not going to that. We will intervene if we have to. That's not doing the yen itself any favors, especially I think from the policy front from the Bank of Japan.
JARED BLIKRE: Yes, well, thank you for that. And we'll be on pins and needles here. Jennifer Lee, BMO Capital Markets senior economist.
