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Waller Confirms That Unemployment is Golden Ticket to Lower Rates

May 21, 2024
Fed Governor Waller, who is a voting member and one of the most influential Fed members, said that inflation is not accelerating and that the April CPI inflation reading was a relief.

Stocks and Mortgage Bonds are both higher to start the day, following comments from Fed Governor Waller.

Fed Governor Waller Comments

Fed Governor Waller, who is a voting member and one of the most influential Fed members, said that inflation is not accelerating and that the April CPI inflation reading was a relief.

He said that monetary policy is at an appropriate level to put pressure on inflation and does not think that further rate hikes are needed – This is similar to what Powell said at the last Fed meeting.

As we have been saying, Waller said the golden ticket for rate cuts is the unemployment rate – Waller said that in the In the absence of a significant weakening in the labor market, need to see several more months of good inflation data before I would be comfortable supporting an easing in the stance of monetary policy. We think that the key level would be 4.1% to 4.2% on the unemployment rate.

Waller also talked about the most recent jobs report and how it was weaker than expected and what the Fed wanted to see. However, he said that a reason for it was weaker Government job creations, which declined to 8,000…And he doesn’t think that will be repeated.

Over the last year Government jobs have accounted for 55,000 of the job gains on average per month. Fiscal 2024 (Oct 23 – Sep 24) State and local government hiring budget was an increase of 2.6% from the previous year. This would account for the above stated average of 55,000 job creations per month.

Looking forward, fiscal 2025 budget (Oct 24 – Sep 25) has been reduced to a 1% increase, which would mean approximately 18,000 job creations per month in this category. This won’t take place until October, but we think that those government job additions will be slowing and consistent with weaker job growth overall and a higher unemployment rate.


Target announced that they are going to lower prices for up to 5,000 products, including food, drinks and other non-discretionary household items.  This is due to competition from others like Walmart, Aldi, and Lidl. While we are seeing most of the inflation coming from rents and motor vehicle insurance, this should help inflation from the food aspect.

CoreLogic Rental Report

CoreLogic released their Rental Report for the month of March, showing that detached rent prices remained up 3.4% year over year. However, attached rental prices declined by -0.6% year over year, the first negative reading in 14 years.

While they don’t have a blended version, they do show that lower priced rentals rose 2% year over year, while higher priced ones rose 2.9%. So a blended version of this is around 2.5%, or possibly higher at 2.6% to 2.7% if there is more of a weighting towards higher priced. But that is still about half what we are seeing in the CPI report. And looking at the rental numbers within CPI over the last three months, it’s annualized at a rate of 5.2%...so we are not yet seeing the benefit of these lower rental prints in the CPI. Since this is where most of the inflation is coming from, we feel once again that it will take a rise in the unemployment rate to pressure the Fed to cut.

Technical Analysis

Mortgage Bonds are breaking above resistance at the 100.427 Fibonacci level and are making another run at the 100-day Moving Average. This has been a touch ceiling and is rejecting Bonds thus far.

The 10-year has tested the 50-day Moving Average the last three days, but this level has been keeping a lid on yields, which is a good sign. If yields can get convincingly under 4.418%, there is a clear path to the 200-day Moving Average at 4.336%.

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