Steve Englander on August Payrolls, Fed Rate Cuts, and Inflation

Economic Outlook and Fed Policy

• 🎯 Steve Englander, Global Head of G10 FX Research at Standard Chartered, discusses his call for a 50 basis point Fed cut in September, driven by softer economic data.
• 💡 He believes the Fed would have cut rates even if they had known the softer non-farm payroll numbers for the past four months, averaging 27,000.
• 📈 The Fed is expected to cut rates but not commit to a series of cuts, acknowledging softer numbers and a need for some "catch-up."

Inflation and Purchasing Power

• ⚠️ Englander acknowledges the strong perception and justification for current inflation, noting that BLS adjustments for technological progress don't always reflect the real price of goods like coffee or farmer inputs.
• 💸 He agrees with the concept of a significant income effect impacting purchasing power, similar to how higher oil prices reduce discretionary spending.
• 🛍️ Tariffs and import prices contribute to this effect by making goods more expensive, forcing consumers to prioritize spending.

Labor Market Dynamics

• 📉 The labor market is described as mediocre, sluggish, and softish, but not indicative of a 2008 or April 2020 crisis.
• 🧩 There's ambiguity in interpreting labor market numbers due to potential shocks (demand, productivity, labor), making it difficult to ascertain the true economic state.
• 🤖 While AI is discussed as a potential driver of future productivity, the Fed's immediate focus is on navigating current data ambiguity.

Market Reactions and Global Impact

• 📊 A little bit of bad news can be good for equities by calming markets and reducing concerns about the cost of capital, provided the company is well-managed.
• 🚀 Strong equity performance despite a perceived economic slowdown might point to underlying productivity gains or increased corporate profits.
• 🌍 For the rest of the world, a 50 basis point Fed cut is more significant than specific job numbers, as it lowers global interest rates and the cost of capital.