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November Jobs Report Seals the Deal for December Lift-Off

Tue, Dec 8, 2:42 PM ET, by Bob McTeer

The juxtaposition of last week's weak IMS Manufacturing Report and the desire of the FOMC, finally, to get off the dime reminds me, somehow, of an old joke that my old boss, the president of the Richmond Fed, used to tell in speeches. It seems that an air traffic controller was overheard giving clearance for a plane to land from the West and shortly thereafter giving the go-ahead for another to land from the East on the same runway. When a colleague pointed this out to her, she got back on the radio and said, "You all be careful now!"

Given the strong hints of a December beginning of interest-rate normalization in her Washington Economics Club Speech on Wednesday and her Congressional testimony yesterday, Chairman Yellen can hardly back out after today's good jobs report. Data dependent means data dependent.

I'm all for it even though the data probably isn't as good now as it was a few months ago in terms of momentum. Sure, we now have two months of 5% unemployment under our belts, but momentum was probably stronger earlier. The recent further increases in the dollar exchange rate, the slowing of global trade, the dicey situation many of our trading partners find themselves in, weakening exports, and, yes, signs of slowing manufacturing don't provide the ideal backdrop for what the market apparently sees as a major tightening. My attitude: Better late than never.

I don't get the markets lately. Whatever happened to news being priced in so that it causes hardly a ripple when expectations pan out? That pattern still makes sense to me. Yet, it seems like each new hint of the same thing has triggered further selling. Take yesterday for example. The hints yesterday in Congressional testimony were similar to the hints the day before in the speech. Yet the stock market took a big hit. Maybe yesterday belonged to Draghi rather than Yellen as he apparently disappointed. But, when the Euro soared against the dollar, which was good news on this side of the pond. We needed some dollar relief.

My take on the aftermath of the FOMC's move on December 16 is that it will soon be seen as no big deal. After possible initial craziness, people will soon wonder what all the fuss was about. Subsequent hikes will be few and far between with the FOMC feeling the rocks to cross the river. How do I know? Janet has told us so, over and over. Plus, the real economy really is weak. There is still plenty of slack. Rising inflation remains a hunch and a hope. Academic studies which the Chairman follows closely are predicting a very low "natural rate of interest," much lower that rates in the years preceding the financial crisis.

Of course, I could be wrong.


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