The December employment report printed hot at 256k vs. expectations of 165k. The household survey was also strong with a 400k add but was flat over the last quarter. 30-year treasury bonds traded down over a point and then bounced back to a more modest ½ point decline. Stocks reacted negatively declining well over 1%.
We continue to believe that the bond market sell off is way over done. Specifically, there has been almost 120bp of tightening of financial conditions over the last 4 months that has not yet shown up in economic growth, employment or inflation. Also, we continue to expect inflation to moderate over the next quarter as shelter has finally started to reflect the reality of dropping market rents and we roll off very hot prints from the first quarter of 2024. We expect core CPI to print in line at .2% next week, which is consistent with cooling inflation. We expect 3 Fed rate cuts in 2025 as the Fed is likely to pause cuts during the first quarter but cut at least once per quarter for the rest of 2025 as inflation moderates below 2.3% and economic growth drops into the 1-2% range as the housing market enters into a recession.
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