With a third of 2024 now in the books, it’s fair to say that the major shift from 2023 has been investor perception that sticky inflation will remain a problem for central banks longer than anticipated. This has caused interest rates to rebound and market leadership to shift from Growth to a combination of Value and Defensives. In his presser last Wednesday, Fed Chair Jerome Powell continued to sound optimistic that inflation will moderate further, but he sounded less certain than he did at the end of last year. Our chart this week shows that based on the four new bits of information we received last week, the Fed should not be particularly concerned about tight labor markets preventing inflation from falling further. Hiring has slowed, but layoffs remain rare and fewer workers are finding it attractive to seek greener pastures. Absent a supply shock to a commodity like oil, it’s hard to maintain high price inflation when wage inflation is falling because of how closely tied consumer spending is to incomes. In our opinion, the Fed may soon come to regret waiting longer to reduce interest rates, especially if unemployment resumes its rise in the coming months.

The Macro Week In Review

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