artificial intelligence now is taking away a lot of entry- levelvel jobs. So the if you look at the unemployment rate for 16 to 24 year olds now it is at 12%. It's in double digits and the duration of unemployment is up to 24 months on average.Uh so I I do think that the combination of inflation coming down and I think dramatically we could see negative inflation rates uh before all is said and done especially if the dollar goes up. I think it's going to take the pressure off interest rates and uh and we're ...

Summary of the January FOMC Preview Industry Overview - The document discusses the Federal Open Market Committee (FOMC) and its monetary policy decisions, particularly regarding the federal funds rate and labor market conditions. Key Points and Arguments - The January FOMC meeting is expected to be uneventful, with no change to the fed funds rate, which remains at 3.5-3.75% [2][3] - Chair Powell is anticipated to emphasize the recent three rate cuts aimed at stabilizing the labor market, indicating that the FOMC is well-positioned to assess their impact [5][6] - There is a consensus among 15 of 19 FOMC participants that additional rate cuts may be appropriate eventually, but the leadership seeks a stronger consensus for future cuts compared to the last cut in December [11][19] - The next expected rate cut is projected for June, followed by another in September, bringing the rate down to a range of 3-3.25% [18][22] - The risks over the next year or two are viewed as tilted to the downside, with hikes being unlikely, but potential reasons for additional cuts include a lower terminal rate or an increase in the unemployment rate [19][22] Labor Market Insights - The labor market is expected to stabilize this year, with an anticipated unemployment rate of 4.5% [6][7] - Job growth appears insufficient to keep pace with labor supply growth, indicating potential challenges ahead [6] - The stability of the unemployment rate since September is seen as a positive sign, but job growth remains a concern [6][8] Inflation Considerations - FOMC participants have differing views on inflation progress, with some focusing on core PCE inflation estimates that are close to 2%, while others rely on official numbers that may remain closer to 3% in the near term [15][17] - A firmer consensus for future cuts will require more convincing progress on inflation, which may take time to materialize [15][19] Additional Important Content - The document includes various exhibits illustrating job growth trends and inflation forecasts, which support the analysis presented [9][10][21] - The FOMC's approach to monetary policy is characterized by a cautious stance, reflecting the current economic uncertainties and the need for a careful assessment of labor market conditions and inflation data [2][19]

Group 1 - Bond traders are increasingly expecting the Federal Reserve to lower interest rates by mid-year following a weaker-than-expected US inflation report [1][2] - Interest-rate swaps indicate that traders are pricing in a near certainty of a Fed rate cut by the June policy meeting, with minimal chances of action in January [2][3] - The core consumer price index rose by 0.2% from November, lower than the expected 0.3%, and on an annual basis, it increased by 2.6%, matching a four-year low [3][4] Group 2 - The Fed has cut rates three times since September to address labor market weaknesses, despite inflation remaining above the 2% target [4][5] - Economists and traders believe that the potential for further Fed interest-rate cuts is contingent on the health of the jobs market, with some banks pushing their forecasts for cuts into 2026 [5][6] - Two-year Treasury yields fell by about 3 basis points after the CPI data, while 10-year yields rose by about a basis point, indicating market sensitivity to monetary policy shifts [7][8] Group 3 - The upcoming 30-year bond auction is expected to yield around 4.83%, the highest for a comparable sale since July, driven by expectations of Fed easing and significant US borrowing needs [8][9] - Treasury yields have remained within narrow ranges over the past month, despite various administration initiatives aimed at influencing the housing market [10][11] - Recent threats to Fed independence have not significantly impacted market sentiment, as support for Fed Chair Jerome Powell has emerged from various political and monetary authorities [11]

Economic Overview - Job growth in December was modest, with approximately 50,000 jobs created, falling short of estimates that ranged up to 70,000 [1][5] - The unemployment rate slightly decreased from 4.5% to 4.4% [1] Revisions and Data Accuracy - The report indicated downward revisions for previous months, with October job losses revised to a decline of 173,000 from an initial estimate of 105,000, and November gains adjusted down to 56,000 from 76,000 [5][6] - The labor force participation rate remained stable at 62.4%, and the employment-population ratio was unchanged at 59.7% [2] Market Reaction - Following the jobs report, major stock indices experienced gains, with the S&P 500 rising by 38 points (0.5%), the Nasdaq Composite increasing by 161 points (0.7%), and the Dow Jones Industrial Average climbing by 206 points (0.4%) [3] - The Russell 2000 index reached a 52-week high of 2,634 [3] General Market Trends - Overall, the market has seen an increase of 1% to 2% this year [4] - Crude oil prices rose by 45 cents to $58.21 on the morning of January 9 [8]

Mortgage Market - The average rate on the benchmark 30-year fixed mortgage decreased to 6.15% from 6.18%, marking the lowest level of 2025 [1] - The average 30-year fixed-rate mortgage started the year around 7%, indicating a significant decline in borrowing costs [2] Housing Market - Home sales in November rose by 3.3% across all U.S. regions, suggesting an improvement in the housing market [3] - Lower borrowing costs may enhance housing affordability, which has been a concern for the economy [5] Economic Indicators - The Bureau of Economic Analysis reported a third-quarter GDP growth of 4.3%, surpassing economists' expectations of 3.3% [6] - The consumer price index rose by 0.2% in November month-over-month and 2.7% year-over-year, both figures lower than economists' forecasts [7] - In November, employers added 64,000 jobs, with the unemployment rate increasing to 4.6%, the highest since September 2021 [8]

Market Overview - The three major indices are on a four-session winning streak, with expectations for a potential Santa Claus rally starting in the last five trading days of the year [1][2] - There is a historical concern as the last two years did not see a Santa Claus rally, and this year could break that trend [2] Trading Conditions - The S&P 500 is expected to have a trading range of about 30 to 35 points, with current volatility at approximately 13.7% [3] - A more defensive rotation is observed in the market, with interest rate-sensitive stocks, consumer staples, real estate, and financials leading the way [5] Economic Data - Mortgage applications have decreased by 5% week-over-week, with the 30-year mortgage rate hovering around 6.3% [7][12] - Jobless claims came in at 214,000, better than the expected 224,000, indicating a mixed picture in the jobs market with an unemployment rate of 4.6% [8][10] - The four-week moving average for initial claims is around 216,000 jobs, reflecting some normalization after previous outlier reports [11] Inflation and GDP - Recent economic data has exceeded expectations, contributing to equity gains, with GDP numbers coming in 1% above forecasts [13] - CPI inflation is reported at 2.7% on the headline and 2.6% on core, suggesting that inflation may not be a significant concern for the Fed [21] Commodity Market - Gold and silver have reached all-time highs, indicating a shift towards commodity trading amid geopolitical risks and central bank policies [22][23] - The gold-silver ratio suggests that gold is currently outperforming silver, which may indicate positive market sentiment and economic growth [24][25] Future Outlook - There are expectations for potential fiscal policies around housing in 2026, especially in an election year, which could influence market dynamics [17] - The market is currently pricing in two Fed rate cuts, with the first not expected until June, but there is uncertainty about how the market will react if these cuts are backed out [20]

Group 1 - The Federal Reserve faces risks of economic recession unless interest rates are lowered further next year, according to Stephen Miran, a member of the Federal Reserve Board [2] - Miran has noted that the necessity for a significant rate cut of 50 basis points has diminished, although he still advocates for a more accommodative policy stance due to rising unemployment [2] - Since September, the Federal Reserve has implemented three rate cuts totaling 75 basis points, and the need for another large cut may be less urgent as the Fed approaches a phase of more precise management of monetary policy [2] Group 2 - This month, the Federal Reserve reduced interest rates by 25 basis points, but there is significant disagreement among officials regarding future policy directions, with most expecting only one more rate cut next year [3] - Concerns about inflation persist, as the current inflation rate remains nearly 1 percentage point above the 2% target, while rising unemployment raises fears of a significantly weakened job market [3]

Core Insights - US Treasuries experienced their first weekly gain since late November, driven by lower-than-expected inflation and a rise in the unemployment rate, leading to expectations of at least two rate cuts by the Federal Reserve next year [1][3] - The 10-year Treasury rate fell by four basis points over the week, while the two-year yield also decreased by a similar amount, indicating a more dovish outlook for 2026 [1][3] Market Reactions - The US unemployment rate reached a four-year high, and core inflation was reported at its slowest annual pace since early 2021, which contributed to a more optimistic market sentiment regarding future rate cuts [3] - Money markets are now pricing in two quarter-point cuts next year, with a 40% probability of a third cut, widening the gap between two-year and 10-year yields to 67 basis points, the largest since January 2022 [3] Investor Sentiment - With major data releases not expected until January, investors are adopting a cautious stance as they approach the new year, reflected in the ICE BofA MOVE Index, which indicates the lowest expected bond-market volatility since 2021 [4] - Analysts from TD Securities noted that uncertainty in data will keep investors alert, with ongoing labor market concerns suggesting potential downside risks to rates [5]

Employment Data Analysis - November saw the creation of 64,000 jobs, contrasting with a loss of 105,000 jobs in October [1] - October's job numbers were generally weak across various categories, followed by a rebound in November [1] - The November unemployment rate increased to 564% (unrounded) from 444% in September, indicating a significant rise over two months [2] - The labor force increased by 323,000 over two months, but data on hires and fires is missing [3] Data Reliability Concerns - The Labor Department reported a stronger than normal response on the establishment survey (jobs created) [4] - A weaker than normal response was noted on the household survey for November, impacting the unemployment rate calculation, suggesting a need to consider error margins [5] Economic Outlook - The Federal Reserve faces challenges in assessing the current economic state and future trajectory due to incomplete data [4]

Group 1 - The market may take a break from expensive tech stocks, indicating a potential shift in investment focus [1] - The risk-reward ratio for investments can appear unfavorable even when not in a bubble, as evidenced by the NASDAQ's 30% decline at the beginning of 2022 [2] - There is a strong market consensus anticipating an economic pickup in the first part of next year, supported by falling oil prices and subdued inflation expectations [3]