Submitted by Taps Coogan on the 8th of November 2018 to The Sounding Line.

Evenflow Macro’s Marc Sumerlin recently spoke with Rick Santelli to discuss the labor market and its implication on the Fed’s rate hike plan, noting that a remarkable 85% of the jobs created in the last year represent people re-entering the labor force.

Marc Sumerlin:

“What we are getting that is not discussed very much is a very strong supply side response. Over the last year we’ve created about 2.7 million new jobs, but at the same time, 2.3 million new people have come into the labor force and so about 85% of those new jobs have been covered by an increase in labor supply. And so that is causing the economy to grow rapidly without putting a lot of pressure or creating imbalances that would make the Fed have to go faster than they already are going now.”

Rick Santelli:

“This is a huge variable and at some point it might be a good buffer between some of the pressures of a labor force that we need and jobs that we’re creating, to keep it from turning into inflation and wage inflation. Now that it’s the first day of a two day Fed meeting, do you see any surprises on the horizon?”

Marc Sumerlin:

“I don’t think so. I think the Fed, they look at couple of things. The economy first and that’s very strong. Second in markets and in the end, markets will tell the Fed when they need to stop and I don’t think markets are signalling that at all. By far the best predictor of the Fed’s behavior is the spread between the Feds Fund Rate and the 10-year and that’s still at about a positive 1%, implying that they’ve still got room to keep hiking. The dollar is about the exact same level as it was on election night when Trump was elected, so we are not getting a strong enough dollar to make the Fed signal that they have to stop and also, when we had the sell off last month…, it was really interesting that we had high yield debt (that) was following equities not leading equities and that’s usually a sign that it’s a market correction and not an economic downturn.”

There is more to the interview so enjoy it above.

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