AI’s selloff on Thursday deterred traders from raising rates in December. Friday’s jobs report immediately called them back.
Chip stocks suffered their second worst day since 1994 on Thursday. Polymarket’s odds of a quarter-point rise at the Dec. 9 Fed meeting fell to about 64% that day, down from 81% the day before. Then, employers added 165,000 jobs in October, more than double the forecast, and the probability rose to about 78%.
This is great news for anyone looking for a job. It’s less great for those hoping the Fed will come to the rescue of a battered and battered stock market.
The report was strong almost everywhere you looked. The unemployment rate fell, figures from the previous two months were revised upwards and wages rose faster than expected.
“With a number like that, you can put work aside as a concern,” Steve Sosnick, chief strategist at Interactive Brokers, said on Yahoo Finance’s “The 8:30.”
That leaves the Fed to focus on the other half of its job: inflation.
The bar for a healthy job market is lower than it was before. Baby boomers are retiring and immigration has slowed. That’s why Joe Brusuelas, RSM’s chief economist, estimates that the economy only needs about 35,000 new jobs per month to remain stable. He told Yahoo Finance’s “Market Hang” that he expects “job growth to be more than three times what is needed to stabilize the job market.”
The Fed may not mind a little pain
Surprisingly, a cooler stock market could be part of the cure.
Wealthy households have been doing much of the spending lately, fueled by the rise in their stocks, a pattern economists call the wealth effect. Take some air out of inventory, and some of those expenses cool down, too.
“To the extent that higher rates also relax stock prices a bit, that may dampen inflation among wealthier households,” KPMG chief economist Diane Swonk said on “The 8:30.”
This dependence on the rich cuts both ways. Swonk wrote on X that the economy is now more dependent on wealthy households “making economic gains” than it was when the last tech bubble burst. The S&P 500 index has more than doubled in four years, she noted, with Goldman Sachs attributing about 45% of that gain to AI-related stocks.
His concern is not that the Fed will burst a bubble. This is because “bubbles accompany technological innovations”. His base case scenario is more benign, a pullback that would “knock out speculators but not collapse the entire market.”
Politico’s Victoria Guida charted a gentler path on Yahoo Finance’s “Market Hang.” She recommends slowing the development of AI through regulation, “rather than having the Fed take a huge hammer and have to dramatically raise rates in order to calm some of this situation.”
Gn bussni
