UpTrajectory Review
Goldman Sachs chief economist Jan Hatzius told CNBC on August 7 that the Federal Reserve will weigh inflation data more heavily than employment data in coming policy decisions. That marks a reversal of the market's two-year habit of treating the monthly jobs report as the economy's decisive number. The context explains the shift: July nonfarm payrolls fell 23,000 against an expected gain of 83,000, June's figure was revised down to 20,000, and the unemployment rate's drop to 4.1% reflected a shrinking labor force, not fresh hiring. Goldman calls the current pace "stall speed."
For a small-business operator, this shift changes which data deserves attention. If the Fed now keys its rate decisions to inflation prints rather than payroll prints, then borrowing costs for lines of credit, equipment loans, and commercial mortgages will respond to price data instead of hiring headlines. A restaurant owner planning a kitchen renovation or a retailer stocking inventory for the holidays should watch the Consumer Price Index and Personal Consumption Expenditures releases with the same urgency that traders once reserved for the first Friday jobs report.
The genuinely new element is Hatzius's framing of June's inflation slowdown as either a one-off or the start of a broader trend. Goldman leans toward the latter, expecting inflation to cool further. We find that call reasonable but not certain. The July jobs weakness could just as easily signal demand cracking, which would pull inflation down for the wrong reasons. Goldman's emphasis on inflation over jobs does not mean the labor market has stopped mattering; it means the bank believes price stability now poses the tighter constraint on Fed action.
The second-order effects cut in two directions. If inflation cools and the Fed cuts rates, operators with variable-rate debt gain relief, and businesses sitting on cash will earn less on deposits. If inflation proves sticky while hiring stalls, the Fed faces a stagflationary bind: it cannot cut rates to rescue employment without risking a second inflation wave. Bank of America's CEO has already warned that inflation could corner the Fed, so Goldman is not alone in seeing the risk. Businesses that locked in fixed-rate financing during the low-rate years hold an advantage over those still floating.
Watch the next CPI and PCE releases for confirmation that June's slowdown extended into summer. If inflation prints come in soft, rate-cut expectations will firm, and operators should prepare to refinance or borrow before the window narrows. If prints run hot, expect the Fed to hold higher for longer regardless of payroll weakness. Either way, the practical step is the same: stress-test your cash flow against both a rate-cut scenario and a no-cut scenario, because the old rule that weak jobs guarantee cuts no longer holds.
“I do think the inflation numbers are going to be more important than the employment numbers” — TheStreet
Takeaway: Track inflation releases, not just jobs reports, when planning borrowing or refinancing; the Fed's trigger has shifted.
Excerpt from the original — TheStreet
For most of the past two years, investors have treated the monthly jobs report as the most important number in the economy. Strong hiring meant the Fed could hold rates higher. Weak hiring meant cuts were coming. The relationship was simple enough that markets moved predictably on the first Friday of every month.Goldman Sachs is now saying that calculus has changed. The jobs number still matters. But something else matters more right now.Jan Hatzius on why inflation matters more than jobs to the FedJan Hatzius, Goldman's chief economist, said on August 7 that the Federal Reserve is likely to place greater weight on inflation data than employment in future policy decisions. The key question, Hatzius said, is whether June's inflation slowdown was a one-off or the start of a broader trend. Goldman sees the latter as more likely, and expects inflation to cool further from here, according to …