Tag: Layoffs

New York
CNN Business
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Investors sleuthing for clues about what the Federal Reserve will decide during its December policy meeting got quite a few this week. But those hints about the future of monetary policy point to an outcome they won’t be very happy about.

What’s happening: Federal Reserve officials made a series of speeches this week indicating that aggressive interest rate hikes to fight inflation would continue, souring investors’ hopes for a forthcoming central bank policy shift. On Thursday, St. Louis Federal Reserve President James Bullard said the central bank still has a lot of work to do before it brings inflation under control, sending the S&P 500 down more than 1% in early trading. It later pared losses.

Bullard, a voting member on the rate-setting Federal Open Market Committee (FOMC), said that the moves the Fed has made so far to fight inflation haven’t been sufficient. “To attain a sufficiently restrictive level, the policy rate will need to be increased further,” he said.

Those comments come a day after Kansas City Fed President Esther George, a voting member of the FOMC, said to The Wall Street Journal that she’s “looking at a labor market that is so tight, I don’t know how you continue to bring this level of inflation down without having some real slowing, and maybe we even have contraction in the economy to get there.”

San Francisco Fed President Mary Daly added on Wednesday that a pause in rate hikes was “off the table.”

A numbers game: Fed officials should increase interest rates to somewhere between 5% and 7% to tamp inflation, Bullard said Thursday. Those numbers shocked investors, as they would require a series of significant and economically painful hikes which increase the chance of a hard landing.

The current interest rate sits between 3.75% and 4% and the median FOMC participant projected a peak funds rate of 4.5-4.75% in September. If those numbers hold steady, Fed members would only raise rates by another three-quarters of a percentage point.

But Fed Chair Powell said at the November meeting that the projections are likely to rise in December and if Bullard is correct, that means investors can expect another one to three percentage points in rate hikes.

Dreams of a pivot: October’s softer-than-expected CPI and producer price reading bolstered investors’ hopes that the Fed might ease its aggressive rate hikes and sent markets soaring to their best day since 2020 last week.

But messaging from Fed officials this week has brought Wall Street back down to earth.

That’s because market rallies help to expand the economy, said Liz Ann Sonders, Managing Director and Chief Investment Strategist at Charles Schwab, which is the opposite of what the Fed is trying to do with its tightening policy. Fed officials could be attempting to do some “jawboning” via excessively hawkish speeches in order to bring markets down, she said.

The bottom line: Investors listen closely to Bullard’s comments because he’s known for having looser lips than other Fed officials, Peter Boockvar, chief investment officer of Bleakley Financial Group, wrote in a note Thursday. But his hawkish predictions may have been “overboard,” especially since he won’t be a voting member of the FOMC next year.

Still, Wall Street analysts are listening. Goldman Sachs raised its peak fed funds rate forecast on Thursday to 5-5.25%, up from 4.75-5%.

A series of high-profile layoffs have rattled Big Tech this month.

Amazon confirmed that layoffs had begun at the company and would continue into next year, just days after multiple outlets reported the e-commerce giant planned to cut around 10,000 employees. Facebook-parent Meta recently announced 11,000 job cuts, the largest in the company’s history. Twitter also announced widespread job cuts after Elon Musk bought the company for $44 billion.

The series of high-profile layoff announcements prompted fears that the labor market was weakening and that a recession could be around the corner.

Those fears aren’t unwarranted: The Federal Reserve is actively working to slow economic growth and tighten financial conditions to rebalance the white-hot labor market. Further layoffs in both tech and other industries are likely inevitable as the Fed continues to raise interest rates.

But this wave of layoffs isn’t as significant as headlines might lead Americans to believe. Thursday’s weekly jobless claims actually fell by 4,000 to 222,000 in spite of the surge in tech job cuts.

In a note on Thursday Goldman Sachs analysts outlined three reasons why the layoffs may not point to a looming recession in the US.

First off, the tech industry accounts for a small share of aggregate employment in the US. While information technology companies account for 26% of the S&P 500 market cap, it accounts for less than 0.3% of total employment.

Second, tech job openings remain well above their pre-pandemic level, so laid-off tech workers should have good chances of finding new jobs.

Finally, tech worker layoffs have frequently spiked in the past without a corresponding increase in total layoffs and have not historically been a leading indicator of broader labor market deterioration, Goldman analysts found.

“The main problem in the labor market is still that labor demand is too strong, not too weak,” they concluded.

Mortgage rates dropped sharply last week following a series of economic reports that indicated inflation may finally be easing, reports my colleague Anna Bahney

The 30-year fixed-rate mortgage averaged 6.61% in the week ending November 17, down from 7.08% the week before, according to Freddie Mac, the largest weekly drop since 1981.

But that’s still significantly higher than a year ago when the 30-year fixed rate stood at 3.10%.

“While the decline in mortgage rates is welcome news, there is still a long road ahead for the housing market,” said Sam Khater, Freddie Mac’s chief economist. “Inflation remains elevated, the Federal Reserve is likely to keep interest rates high and consumers will continue to feel the impact.”

Affording a home remains a challenge for many home buyers. Mortgage rates are expected to remain volatile for the rest of the year. And prices remain elevated in many areas, especially where there is a very limited inventory of available homes for sale.

Meanwhile, inflation and rising interest rates mean many would-be buyers are also facing tightened budgets.