The Economy Is Better Than Fine; Everyobody Knows the Soft Landing Has Occurred; Appropriately, the Fed Will Cut Just 25bp

A 50bp cut would not be unwelcomed and would most assuredly juice the economy and bolster the job market, but it's not necessary

Market bets have fluctuated for the past week or so as to whether the Fed will cut rates today by 25bp or 50bp with the odds ending up at 70% for a 50bp cut. In our view, based largely on the the underlying fundamentals of the economy, the Fed should and will cut just 25bp.

As we’ve been saying all year, the economy remains in very solid shape. GDP growth is strong, the job market is solid, consumers are spending, businesses are spending, unemployment is low, and inflation has plummeted.

Everybody knows The Soft Landing has occurred and today’s rate cut is simply the final announcement for the laggards and skeptics to collect their belongings and get off the plane.

The main driver behind the consensus 50bp cut view is the fear and trepidation swirling around the job market over the past few months. Rest assured, however, the job market is in solid shape. Monthly job gains, of course, have moderated of late - very much as intended and expected - but we have been, all year, in a perfectly balanced, full employment environment - an ideal situation to be sure.

In fact, contrary to ‘official’ data and consensus views, our job openings data, sourced daily entirely from actual job openings on employer websites globally, indicates that U.S. labor demand has actually risen 5.5% this year. JOLTS data, on the other hand, indicates that it’s dropped 13.7% (although the drop is through July only due to the fact that JOLTS data for August won’t be released until October).

Given the fact that the U.S. economy has consistently surprised the markets and most observers to the upside all year, I’ll take our data as the far more accurate indicator of the job market, always and forever the engine driving the economy.

And for that reason, we expect just a 25bp cut later today, appropriately so.