Positive employment reports, strong manufacturing data and consumer spending remains good. Every time America reports that its economy is strong, Wall Street has a panic attack. But why is good news bad news on Wall Street?
“The short answer is that as the economy continues to grow, in particular in terms of jobs, this puts more pressure on the Fed to raise interest rates,” said John Lear, chief economist at Morning Consult.
Strong economic reports suggest that historic interest rate hikes by the Federal Reserve may not have the effect they should have, and US Federal Reserve Chairman Jerome Powell and monetary policy makers may need to raise interest rates for a longer period to slow the economy and calm inflation. Interest rate hikes are bad news for stocks because they erode corporate earnings.
But Wall Street is particularly sensitive to strong job numbers. The resilience in the labor market has been remarkable. The US economy created approximately 4.5 million jobs during the fiscal year, the second largest number in history, with more than 10 million jobs available. The fear is that a strong job market will lead to higher inflation, which is bad news for Wall Street firms.
According to CNN, about 223,000 new jobs were registered during the month of December, but it was the slowest pace since December 2020.
Wages rose 4.6% year-on-year in December, the slowest since August 2021. That may not be news to some, but Wall Street interpreted this reading as a sign that the Fed’s interest-raising decisions they might start working.
“One of the things we’ve seen is that wage growth has been quite strong, and there’s a fear that eventually wage growth will push inflation even further.” in high… So the Fed wants to raise interest rates to try and hopefully dampen the demand for workers,” Lear said. That will lower wages, which will ultimately actually lower inflation.”
These indicators and expectations present the US central bank with a difficult equation. Try to eliminate hyperinflation, but not drive the economy into recession.
“Yes, the economy is strong, but that means the Fed may need to introduce more drugs that will hurt in followed,” Lear said. Yes, the job market is strong, but it’s showing signs of slowing down. It was the second best year in history since it creates jobs, but it’s not expected to continue and that could be good news, because it takes some foam off the economy.”
Also, several crises are adding to Wall Street’s concerns, such as war in Ukraine, labor shortages and ongoing supply chain chaos, which means we have to throw conventional economic wisdom out the window. We have no history to guide us in all of this and there are no easy fixes, according to Lear.
Read More About: Business News