Jobs numbers needed for Fed cuts would not be good for growth, says Unlimited's Bob Elliott

Key Concepts

• Federal Reserve (Fed) policy shift
• Labor market tightness vs. job growth rate
• Impact of Fed policy on equity investors
• Inflation and tariffs
• Consumer spending and real consumption
• Gold as a currency and hedge against Fed interference

Fed Policy Shift and Labor Market Focus

Bob Elliott, CEO and CIO, discusses a perceived shift in Fed Chairman Powell's stance, comparing his statements at Jackson Hole to those made in a previous press conference. Elliott notes a significant change in focus towards the labor market. Powell previously emphasized the strength and tightness of the labor market, but now seems more concerned with overall job growth.

The traditional Fed focus is on labor market tightness, measured by the unemployment rate. The unemployment rate has remained relatively stable due to a "curious slowdown in labor supply" coinciding with a slowdown in labor demand. Elliott argues that if the Fed adhered to its traditional mandate, there wouldn't be a need for intervention. The shift lies in prioritizing the overall growth rate of jobs over tightness.

Impact on Equity Investors and the Jobs Number

Elliott believes that equity investors hoping for Fed rate cuts may not be pleased with the economic conditions required to trigger those cuts. He suggests that "very low or even negative prints in jobs," as predicted by Waller, would be detrimental to equities, especially given their proximity to all-time highs.

There's a tension: rate cuts might benefit the economy in the long run, but the equity market, anticipating strong growth, might not react favorably in the short term. The next jobs number is crucial, as it will heavily influence market expectations and Fed policy.

Inflation, Tariffs, and Consumer Spending

Elliott downplays the significance of inflation numbers, stating that "the only thing that matters is jobs," echoing Powell's sentiment at Jackson Hole. Powell indicated that the Fed would "look through" inflation for the next year, especially considering the impact of tariffs.

However, Elliott acknowledges the potential impact of tariffs on companies like Caterpillar and Gap, which have reported effects on pricing and profits. He warns that rising inflationary pressure from tariffs could negatively impact consumer spending. If consumer incomes don't increase alongside rising prices, consumers will have to reduce their real spending.

He points out that consumer spending was already weak in the first half of the year, growing at half the pace of the previous two years. A further decline in real consumption, the "backbone of the whole economy," could significantly hinder economic growth.

Gold as a Currency and Hedge

Elliott positions gold as a reliable asset for protection against "interference in the Federal Reserve and the devaluation of the dollar." He argues that gold is proving itself as a currency amid concerns about the Fed's actions.

He contrasts gold with cryptocurrencies, which are often touted as "digital gold," but are demonstrating themselves as risk assets.

Conclusion

The interview highlights the complex interplay between Fed policy, the labor market, inflation, and consumer spending. Elliott suggests that the Fed's potential shift in focus towards job growth could have unintended consequences for equity markets and the broader economy. He emphasizes the importance of monitoring consumer spending and the impact of tariffs on inflation. Finally, he positions gold as a safe-haven asset in an environment of uncertainty surrounding Fed policy and currency devaluation.