Three Major Implications of the Jobs Report; Trendy New Idea — Modern Monetary Theory; Joe Biden, Dinosaur
Author: Greg Valliere
April 8, 2019
A VERY IMPORTANT REPORT: It’s worth taking another look at last Friday’s dramatic jobs report. There were three very big implications:
1. A recession is not imminent. We continue to believe that predictions of an imminent recession are ridiculous, and the jobs report confirmed that the economy is snapping back from the winter doldrums. The Atlanta Fed has first quarter GDP growth at 2.1%, and that’s supposed to be the weakest quarter of 2019. Growth of 2-1/4% to 2-1/2% seems likely this year, enough to keep unemployment well below 4%.
2. A Fed rate cut is off the table. A 2019 rate cut always struck us as unlikely; with Friday’s report there’s no chance the Fed will cut rates in any time soon. In fact, if the economy bounces back robustly this spring, a second half rate hike can’t be ruled out, which would enrage the White House.
3. Donald Trump, the re-election favorite. He won’t get his way with the Fed, but Trump has a red-hot labor market, decent GDP growth and low interest rates. Thanks to the energy price spike, inflation may surge for a couple of months, but the economy is the major reason why the embattled president is the early favorite in 2020.
THE HOT NEW IDEA: Everyone seems to be buzzing the Modern Monetary Theory; we strongly recommend a detailed piece in yesterday’s New York Times business section. Proponents are mostly — but not entirely — liberals who believe deficits don’t matter; spending is considered a plus, a stimulant for the economy. Well, Washington is very happy to help — outlays continue to surge, and lawmakers may abandon strict spending caps later this year.
OUR TAKE ON MMT: There’s little correlation between red ink and interest rates; the Cassandras were wrong on this crucial point. But year after year of deficits well above $1 trillion will begin to raise a serious issue: debt servicing costs will surge, which could crowd out virtually all domestic spending. But that’s a problem for 2024; for now MMT is all the rage.
JOE BIDEN, DINOSAUR: The former vice president reacted to the controversy about his un-wanted touching by joking about it, still another sign that he’s tone deaf. And, deservedly, he got skewered on Saturday Night Live. This comes as party insiders express surprise over the glacial pace of Biden’s campaign ramp-up; most of the top political and policy talent has been locked up by the other candidates, and Biden is far behind in organization in fundraising.
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