Daily Commentary BY THE CURVE TEAM –

Employment, Inflation and the Data Dependent Fed

7th of May, 2018

The US data continues to be the shining light amongst other developed nations with nonfarm payrolls posting a solid print on Friday night. While wages growth is yet to kick on, the Fed continues to see inflation coming but isn’t too worried about it.

The nonfarm payrolls report had something for everyone on Friday night. The headline increase was short of expectations, rising 164,000 for the month. The miss was largely offset by positive revisions to the previous two months. The unemployment rate fell to a 17 year low of 3.9% while wages were only up 0.1% for the month.

The data is going to be increasingly important under the Powell led Fed going by a number of recent comments from Fed members. Following Esther George’s comment that the Fed has reached its goal on full employment and price stability for the time being, outgoing NY Fed President Bill Dudley said:

“I’ve said it many times: being a little above 2 percent after being below 2 percent for many, many years is not a problem”

His sentiments were shared by his incoming replacement John Williams who added some colour to the Feds recent use of the word symmetric. Williams said that “I am personally comfortable with the fact that inflation may overshoot that 2 percent for a while.” He then added that the word symmetric was “a signal to say that inflation will sometimes be above, sometimes below, but on average at 2 percent.”.

The RBA is also expects that inflation is coming on a global scale according to Friday’s Statement on Monetary Policy. While a material pick up in inflation might finally be in the offering on a global level, increase inflation is still expected to be “gradual” at the domestic level.

I will take a greater look at what was said in the SoMP and what it means for the outlook in tomorrow’s Curve Monthly Insights.

David Flanagan

Director - Interest Rate Markets