Credit Suisse says we have reached a critical turning point in the recovery (see their latest strategy note here). Last week’s labor report marked the point where the Fed will begin targeting tighter monetary policy. Nonetheless, the labor report is an overwhelming positive for the markets according to CS:
“We think the March jobs report – which was less Census and more private-laden than expected – marks a significant turning point for the labor market. It’s increasingly likely that job growth (non-Census) has entered a period of trend expansion.
In addition to the positive job headlines, the important income and hours worked details were unambiguously positive – not only for a weather-exaggerated March, but for the first quarter overall. There were also significant upward revisions to the prior two months, which is itself a sign of a turning point.
The alternative Household Survey jobs measure has added 1.357mn new jobs over the last three months. The actual recovery might be stronger than what the payroll numbers suggest.”
Their analysts maintain that the Fed likely won’t raise rates until September, but the labor report will likely result in a change in Fed language at their April meeting.
While Fed rate hikes are probably still many months away (we think September), today’s labor market news, and yesterday’s powerful ISM result,
tilt the scales that much more in the direction of the FOMC jettisoning the “extended period” language at the next FOMC meeting (April 29).
Bernanke speaks on Wednesday. Will his accommodative tone change to one of more proactive monetary policy?
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.