Asterisk Economics
November employment and consumer price reports were soft; however, data collection issues suggest December reports are crucial for the January FOMC meeting.
This is the second week we couldn’t help ourselves and wrote a weekly note covering the incoming data, policy and markets, in the midst of releasing our three annual outlook notes. As we have in prior years, we removed the paywall on the first report a week after our clients received the note. We received an exceptional response, we appreciate all the new subscribers, particularly those paying to support our work.
If you haven’t yet read the first two of our annual outlook notes, here are the links…
2026 Outlook: Duration Tightening - by Barry C. Knapp
Macro Themes: Reversing Financial Statism
Confirmation Bias
The November CPI and Employment Situation reports were never likely to be sufficient to change the outlook of the growing hawkish contingent on the FOMC. Chair Powell asserted at the press conference that the Committee was in broad agreement that inflation was cooling and demand for labor was falling faster than demand, and even with asterisks, the November employment and CPI reports were consistent with that outlook. Powell said the disagreement was over the appropriate policy setting to minimize the risk of a nonlinear increase in unemployment while returning inflation to their target, in other words how to deal with their mandate conflict.
Despite the collection issues for both reports, the crucial elements, the unemployment rate and goods prices, both provided further confirmation of our bias that tariffs are an adverse aggregate demand shock. The visceral reaction from the economics community to the CPI report revealed their ideological aversion to the administration’s trade policy, even as the 1-year breakeven inflation rate dropped 19bp over the last five trading days. In other words, even after 9 months of rising unemployment and stable inflation, the new-Keynesians who dominate the Federal Reserve system and academia refuse to acknowledge tariffs, immigration and reduced government spending are adverse aggregate demand, disinflationary shocks.
In this week’s abbreviated note, we provide 20 charts and tables and our thoughts on U.S. employment, inflation and the yen’s sell the news reaction to the BOJ hike.