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US labour mkt: Fed tightening to continue

Over the last week or so, the financial markets have worked themselves into a tizzy about how the Fed is going to "pivot", and stop raising rates.  Share prices rose, the US dollar fell, bond yields fell.  

But the labour market data out Friday morning US time ended this brief burst of euphoria.  Actually, it was never terribly plausible that the Fed was going to "pivot".   The Fed will prolly not stop raising rates until core inflation has fallen from the current 7-ish per cent to much closer to 2 per cent.  Inflation is a lagging indicator.  It responds to economic activity with a one-year lag, though the lag can vary.  So, even if core inflation peaks, it's not likely to get back to the Fed's target until the economic growth has actually gone negative, or at least, fallen a lot.  In other words, job growth needs to be low or zero or even negative.  And that hasn't happened yet.  Job growth (smoothed out) is still above 350,000 per month.  

Because the real economy lags monetary policy changes, the risk remains very high that the Fed will over-tighten and push the economy into a recession while it tries to push the inflation genie back into its bottle.  

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