Inflation Pressures Are Easing but Rate Cut Forecast Remains Uncertain

The New Year is beginning where the old one ended -- with uncertainty about when – or whether – the Federal Reserve will begin cutting interest rates.

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A child playing jump-rope (which children don’t actually seem to do any more), will wait for just the right moment, when the rope is in precisely the right position, to begin jumping. The Federal Reserve, similarly, appears to be waiting for the right moment, when the economic moon and stars and planets are all perfectly aligned, to boost interest rates. It hasn’t found that moment yet.

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If the June employment report calmed jittery analysts, the July report had to make them smile and maybe even grin. Employers added 255,000 workers to their payrolls, beating far more conservative estimates and providing strong evidence that the labor market is churning along at a steady and sustainable pace. Revisions to the May and June reports added another 18,000 jobs to the three-month total, providing more good news in a report that contained a lot of it.

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There’s an old rule-of-thumb for real estate investment: When the dentists and doctors finally get into the market, it’s time for everyone else to get out. A variation on that mostly (though not entirely) humorous observation applies to housing analysts: When they agree the market is healthy, it is almost certainly going to stumble, or fall.

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Pity the poor Federal Reserve officials, fingers twitching over the interest rate trigger, countdown nearing “go,” forced once again to reassess whether the economic indicators are telling them it is still too soon to act.