A trader reacts as a screen displays the Fed rate announcement on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., January 31, 2024.
Brendan McDermid | Reuters
The U.S. stock market is in a “very dangerous” spot as persistently strong jobs numbers and wage growth suggest the Federal Reserve’s interest rate hikes have not had the desired effect, according to Cole Smead, CEO of Smead Capital Management.
Nonfarm payrolls grew by 353,000 in January, fresh data showed last week, vastly outstripping a Dow Jones estimate of 185,000, while average hourly earnings increased 0.6% on a monthly basis, double the consensus forecasts. Unemployment held steady at a historically low 3.7%.
The figures came after Fed Chair Jerome Powell said the central bank would likely not cut rates in March, as some market participants had anticipated.
Smead, who has thus far correctly predicted the resilience of the U.S. consumer in the face of tighter monetary policy, told CNBC’s “Squawk Box Europe” on Monday that “the real risk this whole time has been how strong the economy has been” despite 500 basis points of interest rate hikes.
“We know the Fed has raised rates, we know that caused a banking run last spring and we know that’s damaged the bond market. I think the real question can be ‘do we know that the lowering of CPI has actually been caused by those short-term policy tools they’ve used?'” Smead said.
“Wage gains continue to be very strong. The Fed has not affected wage growth, which continues to outpunch inflation as we speak, and I look at the wage growth as a really good picture of inflationary pressures going forward.”
Inflation has slowed significantly from the June 2022 pandemic-era peak of 9.1%, but the U.S. consumer price index increased by 0.3% month-on-month in December to bring the annual rate to 3.4%, also above consensus estimates and above the Fed’s 2% target.
Smead argued that the fall in CPI should be chalked up to “good luck” due to the…
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