Fed's challenge is if labor weakness is demand related or more structural, says KPMG's Diane Swonk

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KPMG 3.0
Management Consulting
Diane Swonk 9.0

Fed's challenge is if labor weakness is demand related or more structural, says KPMG's Diane Swonk

yields

as you saw the 10 year yield rise higher to around 414 Rising yields reflect reduced rate cut expectations due to persistent inflation pressures

3 calls

-4

no reliable edge (random outcomes)

Asking if current market expectations represent a big departure from post-Fed meeting sentiment

Contessa
Steve Liesman

Rate cut probabilities dropped from near 100% to 41% as 10-year yield rose to 4.14%, driven by Fed officials' concerns about persistent inflation beyond just tariffs

September inflation report and other data show continued price pressure with inflation running around 3% vs 2% target
Asking what metrics could move rate cut probabilities further

Contessa
Diane Swonk

Fed facing inflation pressures from labor market shortages in elder care, daycare, childcare - affordability issues creeping up despite soft overall labor market

Dispersion of price indices in CPI picked up, indicating broader inflation beyond tariffs; economy gains narrowly focused on AI boom and infrastructure
Diane Swonk

Fed losing credibility as inflation normalizes, with tariff sequencing mimicking inflation patterns

Price levels out of reach given incomes, resonating with administration
Highlighting real cost pressures forcing trade-offs between daycare and groceries, potentially explaining labor market participation issues

Contessa
Steve Liesman

Fed will have data gaps for October, getting inflation report on day two of December meeting

Interesting link between inflation and labor force dynamics, with break-even payroll growth potentially as low as 30,000-50,000
Steve Liesman

Hawks view low payroll growth as structural change not requiring monetary policy response

Demographic and fiscal policy factors driving labor force stagnation

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