Good morning.
The much-predicted recession has yet to show its face, with Friday’s employment report showing jobs growing solidly in November and unemployment remaining at a historically low 3.7%. The well-publicized job losses at companies like Amazon, Meta and and Twitter were more than offset by gains at hospitality businesses—particularly restaurants and bars—as people spill back out into the world with a vengeance.
Does that mean recession fears are overwrought? Not really. It probably just means that they are just premature. The Friday numbers showed wage inflation trotting ahead at 5%, which means the Fed’s 4% federal funds interest rate is still too low to curb economic activity. Money remains free. I’m guessing the Fed funds rate will have to get to 6% or higher before it starts to bite, which means the recession gets delayed until late next year, or even early 2024.
All of this means Fed Chairman Jay Powell is the man to watch in 2023. Will he take his foot off the brake too soon, before inflation has been subdued? Or will he step down too hard, making the recession longer and more painful than it needs to be? Right now, the Fed chief has a mixed record. He was right to open the spigots when the pandemic hit in 2020, but he was wrong to think the inflation that resulted was transitory. His legacy now rides on how he handles the next big test.
Which is why Fortune put a worried-looking Powell on the cover of its year-end magazine. If you haven’t read Christopher Leonard’s story on the Fed chief, you should do so today. It may provide some clues on how he’ll handle his big test. And here’s a takeaway statistic: $4.2 trillion. That’s the amount of money added to the Fed’s balance sheet since Powell became chairman—unprecedented in the history of central banking. Don’t be surprised if that flood of free money led to some massively bad bets. (Sam Bankman-Fried’s meltdown may just be the appetizer.)
Other news below.
Alan Murray
@alansmurray
alan.murray@fortune.com
