June payrolls—no Fed rate cut

As I expected, US payrolls spiked up in June month-on-month, but the trend remains firmly down. 

These data reduce the likelihood that the Fed will cut rates any time soon.  Yes, the regional Fed, ISM and PMI surveys  all indicate that the economy is slowing, but they don't yet show recession.  A couple of times in this cycle, the economy's engine has sputtered, but it has always fired up again.  I think it is certain that there will be a US recession, based on my longer-leading and my leading indices, but the Fed will prolly need more evidence of a slowdown before it cuts rates.  Think of conducting monetary policy as being like driving a car, except you can't see through the windscreen, you only have a clear rear-view mirror and even then you can't see things too close to the rear of the car, plus your brakes and your accelerator sometimes hardly work and at other times are over-responsive.  The Fed doesn't want to create a crazy acceleration in the car, maybe causing a crash later.  It doesn't want to cut rates now only to have to raise them next year—an election year.

The officials I've met at the Fed over the years have been formidably intelligent and well-trained, but their view through the windscreen is still just as murky as everybody else's.  Given the raucous criticism of the Fed by Trump, they will be more cautious about adjusting rates than they might otherwise be.  And even though the Fed isn't just the central bank of the USA, but is also the de facto central bank of the world, which is in recession,  they have to answer to US politicians and critics rather than those outside the US.  The fact that the world is slowing fast might not be as important to the Fed as the fact that even though the US is slowing, it's still not yet recessionary. 

My perspective, looking through the murk ahead, is that we will likely see a weak July payroll number , a "zig" after June's "zag", but prolly not a negative print.  So it'll likely be September before payrolls actually fall month-on-month—if they do.  And that'll be the point at which the evidence will be convincing enough for the Fed to start cutting the Fed Funds rate.