Home Business Premarket stocks: Jay Powell’s dream of the 90s is dead

Premarket stocks: Jay Powell’s dream of the 90s is dead

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US economy 263,000 jobs added in November, which exceeds the consensus estimate by 63,000. The bigger surprise was his 0.55% increase in average hourly earnings, his fastest pace since January.

A strong job market is good news for American workers, but a concern for the Federal Reserve and stock bulls. This shows that his Fed’s strategy of keeping inflation down by raising rates is not working well and will result in more painful rate hikes.

what’s happening: Employers often try to pass on the cost of paying higher wages to customers by raising the prices of their goods and services. When prices rise, workers often demand more wages to cover their living expenses. And when they receive it, the price goes up again to keep the company profitable. This is the inflation-inducing wage-price spiral Fed officials are desperately trying to avoid.

So the holy grail of economics is often to raise wages and lower prices.

Fed Chairman Jerome Powell: ‘Frankly, strong wage growth is a good thing’ said Wednesday at the Brookings Institution. “But for wage growth to be sustainable, it needs to be in line with 2% inflation.” Year-on-year wage growth rose to 5.1% in November, more than double the target. became.

To bring wage growth back to sustainable levels and keep inflation under control, labor demand must be reduced.but there was 1.7 Recruitment In October, the labor force participation rate of each job seeker declined, and labor competition and wages remained high.

The dream is over: Over the past year, Powell has advanced optimism that wage growth can be slowed without sending the economy into recession. He said the end of the pandemic will bring workers back from the sidelines to the labor market, reduce labor imbalances and ease inflationary pressures.

This idea came directly from central banks. 1994 playbookwhen the Fed finally eased inflation and made a soft landing.

But jobs today are different than they were then. The baby boomer was at the height of his career in the 1990s, and immigration numbers were strong. All of this led to an increase in the working population and kept unemployment low even as interest rates rose.

Last week’s jobs report shows Americans are not returning to the job market.

Powell finally seemed to admit it during his speech last week, citing a glut of retirees as baby boomers leave the workforce and the long-term effects of Covid are being felt. Slowing growth in the working-age population, sharp declines in immigration and a surge in deaths during the pandemic will also have long-term negative effects on labor supply imbalances, he said.

In short, workers are in demand because they are in short supply.

Powell also appears to have conceded that his dream of a sharp increase in the labor supply is over and that the path to cutting interest rates while avoiding widespread unemployment has narrowed considerably.

“Despite some promising progress, there is still a long way to go to restore price stability,” he said.

Goldman Sachs posted earnings growth this year, but traders and salespeople at investment banks will be vying for a bonus pool that’s at least 10% smaller than last year, he said. Bloomberg report.

Goldman has begun telling management to expect a reduction in the “low double digits,” the report said.

Investment bank Jefferies also warned staff this week that 2022 will be a “difficult season for rewards.”

A recent spate of pessimistic warnings Bigger trends on Wall Street.

Overall, bonuses for bankers helping companies consolidate could fall by about 20% this year, according to a recent report from compensation consulting firm Johnson Associates could be reduced by 45%.

“This year has been unusually bad,” said Alan Johnson, managing director of Johnson Associates. prize.”

Big picture: No one is crying for a banker who earns an early career salary of about $200,000 before bonuses. I’m saying Year-end payments are plummeting as mergers and acquisitions dry up, inflation continues and the threat of recession grows.

“This is the canary in the coal mine for the economy. If the canary dies, it’s not good for anyone,” Johnson said.

Global M&A volume was $642 billion in the third quarter, according to Refinitiv. That’s a 42% drop from the previous quarter and his lowest trading volume in a decade for that period.

According to an in-depth study by the National Association for Business Economics, a majority of a panel of economists believe there is a greater than 50% chance of the United States slipping into recession in 2023, with this year’s first recession likely the most likely. One quarter.

“NABE survey participants continue to lower their expectations for the U.S. economy with expectations of slowing economic growth, rising inflation and a weakening labor market,” said NABE President Julia Coronado.

So what brings us there? More than two-thirds of those panelists said they believed his Fed’s rate hike policy was the biggest factor in the dire economic outlook. Nearly 70% cited “excessive monetary tightening” as the biggest downside risk.

Darker: Fewer than a quarter of panelists in pessimistic surveys believe the probability of the economy avoiding a “deep recession” is greater than 50-50, and among these respondents, the probability of achieving a soft landing is No one rated it above 75%. .

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