Not Too Hot, Not Too...

We have seen so many words describing our economic climate during the past few years. Words/phrases such as soft-landing, stagflation, sticky inflation, recession, qualitative tightening and more. There are so many that it is hard to keep up with the nomenclature. This week, we would like to bring one more to the table—the famed Goldilocks. Yes, the character famous for visiting the three bears.

Why are we looking for Goldilocks? Well, we want a few economic reports that are not too hot and not too cold. At the start of the year, we talked about how strong the job market has been. We keep repeating the statement that you can’t have a recession when you are adding hundreds of thousands of jobs per month. However, unless the pace of jobs growth slows, it is unlikely that we will see the Federal Reserve lowering short-term interest rates anytime soon. It is so hard to root for the economy to create less jobs, but we need the porridge to cool somewhat.

The bottom line is that a hot job market will keep forcing labor costs higher which in turn will keep the Fed from achieving their goal of a 2.0% inflation rate. What’s more, the lack of listings in the market continues to support increasing real estate prices, another inflationary factor. We have made great progress against inflation, but the Fed has made it clear they need to finish the job and it is not likely we will see a rate cut in March. The conclusion? Like Goldilocks—we need to cool it.