Soft Landing in Both Parts of the Fed’s Dual Mandate

Apollo Chief Economist

Since the Fed started raising rates in March 2022, job growth has slowed steadily, see chart below.

This is what the textbook would have predicted. When the Fed raises rates, firms slow down their hiring.

Looking ahead, the consensus expects job growth to grind to a halt over the coming six months, see the consensus forecast in the chart below.

The key question for markets is if we can get a soft landing in both inflation and in the labor market, i.e., in both parts of the Fed’s dual mandate.

With inflation slowing and the labor market softening, the risks are rising that both inflation and employment are weakening faster than markets currently expect.

Weaker inflation is good. But a weaker labor market is not good.

Put differently, markets will soon turn their focus away from weaker inflation to a weaker labor market.

In short, everyone who is bullish on equities and lower-rated credit should ask themselves where they think the labor market will be in three months, with the Fed on hold and not showing any signs of cutting anytime soon.

Since the Fed started raising rates, employment growth has slowed
Source: BLS, Haver Analytics, Apollo Chief Economist

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