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JPM Pull Forward Liftoff To March

  • “December was no exception” to the labor market story of 2021 where there was unexpected failure of supply to keep up with the expected surge in demand.
  • Nonfarm employment was just 199k (cons. 450k), albeit partially offset by positive revisions (+141k), yet the unemployment rate again surprised to the downside at 3.9%.
  • “Less than a month ago the median FOMC participant thought the unemployment rate would move from 4.3% in 4Q21 to 3.5% in 4Q22. In one month the u-rate has made almost half that journey”.
  • Further, stronger-than-expected average hourly earnings, at 0.6% M/M and 4.7% Y/Y, “failed to bring potential workers back into the labor force” with participation unchanged.
  • JPM believe Fed officials are coming to the same conclusion that the labor market is very tight, “and that it may be a tough sell to hold off on the first hike until June, our prior call. We now see liftoff in March, followed by a quarterly pace of hikes thereafter.”
  • The addition of three likely doves to the Board shouldn’t change this; “delaying liftoff much further only increases the chances of a hard landing, an outcome inconsistent with maintaining maximum employment”.

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