On the first of each month, I share reflections on the market in our private podcast. This enables me to tie together the various threads of our work and connect the dots between what I observe and hear during my travels and interactions with people. 

While many of you are podcast buffs, some prefer the magic of the written word. This is an edited transcript of the recording, without my typical writing flair. Here goes:  

Let’s start with the Fed. 

“Based on the meeting today, I would tell you that I don’t think it’s likely that the committee will reach a level of confidence by the time of the March meeting to identify March as the time to cut rates,” Powell said, adding, “but that's to be seen.”

So what needs to be seen? 

To the extent policymakers at the Fed have fretted over the possibility that inflationary psychology would become deeply entrenched, that looks not to have happened. 

Core PCE inflation is 1.5 percent based on 3-month annualized data and 1.9 percent based on 6-month annualized data. Shelter CPI has now moved down on a year-over-year basis for nine consecutive months, from a peak of 8.2 percent in March 2023, the highest since 1982, to 6.2 percent today. Given its long lag versus real-time data, a continued move lower is expected which should lead to a continued decline in core inflation.

We have been guided by the 1995 template. Back then, the Greenspan Fed stated inflationary pressures had receded enough to accommodate a “modest adjustment” in monetary conditions. I suspect we’ve reached that point in the present. 

The other key aspect of what inspired the Fed decision to lower rates was the average number of private sector jobs added each month dropped from over 300,000 At the end of 1994 to barely 100,000 By the middle of 1995. So in July 1995, just five months since the final rate hike in February, the Fed cu