Preparing for the Pause

History shows this recent tightening cycle is over

Well, I have to say that I liked what I saw last week. Powell’s body language at the FOMC meeting represented a fairly big shift on two fronts: acknowledging that policy was restrictive and that there was still a ton of tightening in the pipeline we haven’t seen yet — and from my lens, it is no longer going to be camouflaged by raging fiscal stimulus. The employment report on Friday showed the first cracks on the labor market front. Never mind that nonfarm payrolls came in light at +150k in October versus the +180k consensus estimate, and that this was the second softest print since December 2020. When you count in the downward revisions, the contraction in the workweek, and the skew from the birth-death model, it was equivalent to headline coming down -528k last month. In fact, the Household survey was not far off, as the market had collapsed -348k in October. That includes the additional +218k that were working part-time for economic reasons and the +205k surge in the number of people taking more than one job to make ends meet — that is a classic countercyclical indicator.