MONEY MARKET | September 2022

Taxable Money Market

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John Tobin

John Tobin

Chief Investment Officer,
Money Market Strategies and Distribution

The Federal Open Market Committee (FOMC) July 27 meeting minutes reflected a consensus view that inflation remains very high, the labor market remains strong and tighter Federal Reserve (Fed) policy may have negative implications for growth. The Fed continues to assess the impact of higher rates on inflation and suggested tempering the pace and magnitude of policy tightening at some point. It appears that the Fed is trying to engineer a shallow recession to restore price stability, while avoiding stagflation.

Chair Powell delivered a hawkish speech at this year’s Jackson Hole Economic Symposium. Chair Powell’s speech was direct, pointing to the Fed’s focus of restoring price stability to their 2% mandate. He said the central bank’s “overarching focus right now” is inflation. At least for the short term, the Fed seems to have moved to just a single mandate, inflation. Chair Powell also provided context the FOMC’s interpretation of recent softening inflation data. Powell stated that, while encouraging, “a single month's improvement falls far short of what the Committee will need to see before we are confident that inflation is moving down.”

The August payroll report reflected moderation in job growth but remained strong enough to keep markets guessing about September’s FOMC meeting. Nonfarm payrolls increased by 315k versus expectations of 298k. The labor force participation rate moved higher to 62.4% from 62.1%, moving the unemployment rate to 3.7% from 3.5%, which is the first increase since January. Professional and business services led the increase in jobs, with leisure and hospitality exhibiting the smallest gains in almost two years. Wages were softer with average hourly earnings up 0.3%, less than the expected 0.4%. The continued strong growth in jobs and increase in the unemployment rate adds complexity to the Fed’s decision at the September FOMC meeting. This report will put increased pressure on the results of the September Consumer Price Index (CPI) numbers and may ultimately be the deciding factor for the Fed’s next rate decision.

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