Chairman Pow and the FOMC Make Their Move This Afternoon

Yesterday’s ECI print adds more uncertainty to the issue. [The Rude Awakening] February 01, 2023 [WEBSITE]( | [UNSUBSCRIBE]( Chairman Pow and the FOMC Make Their Move This Afternoon - At 2 pm EST today, the Federal Reserve makes its rate announcement. - Most agree the Fed will hike rates only 25 basis points to an upper limit of 4.75%. - But after yesterday’s Employment Cost Index, things may turn out differently. [Hey, It’s Jim Rickards Here]( I need your attention immediately. [My big announcement]( comes down on Wednesday at midnight. If you haven’t already, [click here now to see it.]( Trust me, you do not want to miss out on what’s coming. [Click Here To Learn More]( [Sean Ring] SEAN RING Good morning from sunny and brisk Northern Italy. It’s hard to believe it’s February 1st already. That means I arrived in Italy 10 months ago today. Wow. It also means that at 2 pm today, Jay Powell and his crew will pass down their interest rate decision from on high. I’m still in the “25 bps only” camp. There was nothing in The Journal from Nikileaks to indicate otherwise. In fact, his latest piece seems to have confirmed it. I long for the days when the Fed’s rate decisions were an afterthought. After all, if interest rates are the price of money, shouldn’t the market determine that price? It’s a market like anything else. Instead, we’ve got 12 gray-haired people - I’d be completely gray if I weren’t completely bald - telling 8 billion other people what rates are. It’s an impossible job answering a question that only a market can answer properly. But never mind that for now; I’ll piss and moan about our interest rate mechanisms another time. The immediate concern is what the Fed will do today. And yesterday’s economic figure has a bit to do with today’s rate decision. Yesterday’s Employment Cost Index for the fourth quarter of 2022 was the final piece of the Fed’s puzzle. I haven’t written about the ECI before, so let me set the terms first. What is the ECI? The Employment Cost Index (ECI) measures the change in the cost of labor, including wages and benefits, for U.S. civilian workers. U.S. Bureau of Labor Statistics publishes the ECI. Those are the same people who track the CPI. More on that later. The ECI is used to track changes in compensation costs over time across industries and geographic regions and for different types of workers, such as private sector or government employees. The ECI provides essential insights into the U.S. labor market, including labor costs, productivity, and inflation changes. How is the ECI Used? Investors, traders, and economists use the ECI as a critical indicator of labor market conditions and inflationary pressures. By tracking changes in the cost of labor, the ECI provides insights into the current state of the economy and helps decision-making in several ways: - Inflation expectations: The ECI is a leading indicator of inflation, as rising labor costs can lead to higher prices for goods and services. This information helps investors decide whether to invest in inflation-sensitive investments like bonds. - Interest rate expectations: The Federal Reserve uses the ECI, among other indicators, to determine monetary policy, which includes setting interest rates. Rising labor costs lead to higher inflation and prompt the Fed to raise interest rates. - Economic growth: A growing economy typically sees rising labor costs as employers compete for a limited pool of workers. The ECI provides insights into the current state of the economy and helps economists predict (usually badly) future economic growth. - Stock market performance: Changes in the ECI affect stock market performance, as higher labor costs reduce corporate profits and pressure stocks. What’s the Difference Between the ECI and CPI? The Employment Cost Index (ECI) and the Consumer Price Index (CPI) are both economic measures used to track price changes over time, but they have clear differences. The ECI measures the change in labor costs, including wages, salaries, and benefits, for workers in the United States. It tracks changes in the cost of labor for businesses and governments and helps assess the economy's overall health. The CPI measures the change in the price of a basket of household goods and services. It reflects the average price change that households pay for an enormous range of things, such as food, housing, transportation, and medical care. One key difference between the ECI and the CPI is that the ECI focuses solely on changes in the cost of labor, while the CPI tracks changes in the price of a wide range of goods and services. Another difference is that the ECI measures changes in the cost of labor for businesses and governments. In contrast, the CPI measures changes in the price of goods and services consumed by households. This is why the ECI leads the CPI. Overall, the ECI and the CPI are both important measures, but they have different purposes and cover different aspects of the economy. In short, the ECI provides a measure of changes in the cost of labor. The CPI provides a measure of changes in the overall cost of living. [Over 62 And Collect Social Security? Take Action Immediately!]( [LIR]( [If you’re over the age of 62 and currently collect Social Security, you need to prepare now](. Because Biden has given our country the worst inflation in decades – and many warn things will only get worse from here. Worse yet, the Social Security check you receive now may not keep pace with inflation… [Which is why, if you don’t act now, you could fall behind in the months ahead](. Is your retirement at immediate risk? [Click here now to get the simple, step-by-step actions to survive inflation](. [Click Here To Learn More]( What Happened Yesterday With the ECI? The ECI came in at 1.0% for the quarter. This was lower than the consensus number of 1.1%. But more importantly, it marked another decline in the ECI, which is what the Fed is looking for. The ECI came in at 1.2% in September 2022. Powell wants to ensure wages are coming down before taking his foot off the economic brake. Here’s the chart of the ECI, courtesy of the BLS themselves: [SJN] Credit: [The BLS]( You can see we’re well off the peak. Though it must be said costs are rising at a lower rate. The Market’s Reaction to the ECI As the ECI printed before the market opened, the market got off to a great start… and kept going throughout the remainder of the session. Here’s yesterday’s SPX, in 10-minute increments: [SJN] We got close to the all-important 4,100 level. On January 24th, I showed you this chart regarding the 4,100 level: [SJN] Well, when I opened The Daily Chart Report email this morning, this Chart of the Day greeted me: [SJN] Credit: The Chart Report Yes, Linda, the world is watching this level. That’s especially true since we broke the 200-day moving average line and the downtrend line. If we get above 4,100 today, I think it’s clear sailing to 4,300. Wrap-Up Today, we wait with bated breath for Jay Powell and his band to raise rates. By how much? The easy call is 25 bps. Anything else will cause at least a temporary upheaval. If I’m wrong, tomorrow’s Rude will be a mea culpa of particular hilarity. Until then, have a lovely day ahead! All the best, [Sean Ring] Sean Ring Editor, Rude Awakening [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2023 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. To end your Rude Awakening e-mail subscription and associated external offers sent from Rude Awakening, feel free to [click here.]( Please note: the mailbox associated with this email address is not monitored, so do not reply to this message. We welcome comments or suggestions at feedback@rudeawakening.info. This address is for feedback only. For questions about your account or to speak with customer service, [contact us here]( or call (844)-731-0984. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. 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