President Trump nominated current Fed Governor Jerome Powell to be the next Chair of the Federal Reserve when Janet Yellen’s term ends in January 2018. Seen as the “status quo” candidate, the market took the announcement in stride. The ten-year Treasury yield continues to hover around 2.3% plus or minus and the stock market had little if any direct reaction. Powell is thought to lean towards more financial deregulation though his expressed views tend to be incremental rather than transformational. Should he be confirmed, Powell will have a tough road ahead. It is hard to say what “normal” is supposed to be these days, but regardless the US monetary policy is on a path of looking more like days of old. With several increases of the Fed Funds rate and the run-off of the balance sheet started at a trickle, the next Fed Chairperson is more than likely going to have to navigate the tipping point. When is the tightening too much? Let’s hope he is up to the challenge.
That said, the US jobs report this morning did nothing to dissuade the expectation for another rate increase in December. While the job gains were a little less than consensus (+261k vs. +310k expected) the difference was explained by a revision upwards in September of 50k more jobs than originally estimated. Headline unemployment is now at 4.1% and the underemployment number (including discouraged workers and part-time for economic reasons) is below 8%. That said, the inflation bulls did not get much new ammunition as wage growth is at roughly 2.4% year-over-year growth. Usually a tight labor market pushes wage trends past the 3% growth mark which in turn fuels inflation concerns. All that to say is the mixed report was good without being too good and nothing to change our expected trajectory.