Fed must stay neutral; inflation still dangerously elevated; AI labor displacement a key risk (with Tom Keene, Paul Sweeney)

Lindsay Piegza

There is a lot of reason to be concerned about tackling dangerously elevated inflation. The Fed needs to adjust policy appropriately to keep inflation in check.

We saw stronger-than-expected growth and slightly better labor market conditions. Some momentum in inflation has cooled, but concerns remain.

Lindsay Piegza

Fed Chair Warsh took a much more neutral stance than the market expected. Over the medium to longer term he will likely steer toward lower rates, but in the near term he acknowledges elevated inflation.

At worst, he downplays the potential for rate hike conversations even if the committee moves in that direction. His shorter statement (130 words vs 4-5x longer) was a notable communication change.

Lindsay Piegza

I expect non-farm payrolls to increase by about 120-125K, still solid but slower than May. Unemployment rate likely steady at 4.3%. Average hourly earnings around 3.5% annual.

These relatively sturdy numbers could quickly derail hawkish Fed sentiment if they bring back talk of transitory energy price shocks from the conflict.

Lindsay Piegza

AI is driving higher productivity and efficiency for businesses, but a middle-of-the-road analysis expects about 9 million jobs displaced this year alone. The longer-term disruptive impact on the labor market cannot be underappreciated.

Historically, technological change has been labor-augmenting (some jobs lost, others created). This time there is a big question mark: if AI permanently displaces the human component, it could have a more lasting negative impact.

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