Stephen Kates, certified financial planner and principal at Clocktower Financial Consulting, on the Fed's rate decision, GDP and what to watch in the job market

Joining us now, Stephen Cates. He is a certified financial planner and principal of Clock Tower Financial Consulting, and we're going to talk about all things. Financial news this week. How are you, Stephen? Great. How are you, Lisa? Doing great. Okay, so today at 10, we're going to get our monthly job openings and labor turnover survey, which I love the name of this, Joltz. That's fabulous. Thank you. Yeah, it's going to jolt us awake. It will jolt us awake. Tell me what we're expecting. So it's hard to know exactly what it's going to come out like. Surprises can be, you know, relatively frequent, whether it's on the job opening front, which we're hoping for a bit of an upside surprise. The things that I'm going to be watching the most closely are going to be hiring. So are we seeing any increase in the rate of hiring? It's been very low for most of the last 12 months, and that's made the job market as difficult as it's been. Although layoffs have been relatively low, it's the hiring rate that I want to see an improvement in. And we can also look to things like quits or layoffs for any indication of kind of a change in sentiment from employees if they're feeling a little bit more. you know, excited to go find a new job, we're going to see hire quits. If employers are thinking that they have an upper hand, we may see more layoffs. So hiring layoffs and quits are really what we're going to be watching. You know, it reminds me of the property, the sales or the housing market. You know, it really just depends on, you know, what they're looking for, and I guess location would matter as well. But we also have the Federal Reserve meeting tomorrow. What are we – sorry, it was last week. Apologies. And so they held the rate steady in July. Do you think that's going to change when it comes to September? You know, I think that we could see something changed in September. I think that at this point, we're already seeing a bit of a ground swell of, you know, the committee members start to shift their thinking. So back in June, there were no changes. Everybody was on the same page that they wanted to hold rate steady. In this last meeting, in July, we had three people, three different committee members say that they thought we should raise rates. And the other nine, said, no, let's keep them steady. If that switches and we start to see a plurality of people feel like we need to raise interest rates to fight inflation, to try to slow the economy a little bit, then they've got two months to digest some data to see what that's going to look like. The market, specifically the bond market, reacted very poorly to the fact that no change was made and to the comments that Kevin Warsh, the chair, made during his press conference. Those things could push the Fed towards making the move. What about the Treasury yield? It jumped the most in a year to the highest level since 2007.

Correct. Yes, so the 30-year treasury, which is the longest treasury bond that the U.S. government offers reacted. That was the poor reaction that I was referring to. Gotcha. It jumped very quickly, much higher to a very high level. And that's indicative of the fact that the bond market is not happy with the way the Fed is handling things. It feels like inflation is too high. It feels like the Fed is not giving, in this case, the Fed being Kevin Warsh, giving an education of how they are evaluating. the economy? What are they looking at? How are they going to know whether they're succeeding or failing? All he's done is talk about that we are committed to price stability, but he hasn't talked about how are they going to know whether they're actually meeting that goal? It's been a lot of, you know, obfuscation in a way, and that has been unsettling. Well, yeah, I mean, lack of transparency and knowing the results of things is really, it's hard when somebody in power is saying, yeah, it's fine. Okay, so the first of three reports on the second quarter GDP was released as well. Was it good, bad? What are we looking at? It was a bit disappointing, but I do want to stress what you said there. It's the first of three. We get two more revisions over the next two months to this GDP report. Those revisions can swing fairly wildly. There's a lot of data to crunch for this GDP report. And so we get an early indication of the way things look. We're going to get another month for... the Bureau of Economic Analysis to look at this data. And in the past, Q1 in particular, we saw nearly a full percentage point shift between some of these evaluations month to month. So this could swing to something that is much more sunny of a look back. We just don't know. But what I would say to people is that the biggest thing that made this look a little disappointing was higher than expected net exports. So we imported more things, and that is a subtraction from GDP, other aspects of the GDP report, investment domestically, and consumer spending. Those are actually pretty good. Okay. And finally, let's get to this really quickly. Personal consumption expenditures, that's including food and energy prices. It may have fallen for the previous months, but I think with gas going up, we may see a rise. Yeah, so the trouble with this and reading too much into this personal consumption expenditures or PCE report is that it's looking at June. We knew that June gas prices had already fallen. Oil prices were coming down, and by July they were going back up again. So we can't necessarily look at this as the beginning of a trend because we already know what happens in July and that the data from July is going to look a little worse. The troubling thing is that when we strip out food and energy prices. and look just at the core report. We're not expecting, per the Cleveland Federal Reserve and their projections, that inflation is going to improve over the next few months. We need improvement. That is what the Federal Reserve should be paying attention to. And if we have no improvement, then they're not getting their price stability. And that's a problem. Yeah, huge problem. Stephen Cates, certified financial planner and principal of Clock Tower Financial Consulting. Always great information. Thank you so much. We'll talk to you next Tuesday. Pleasure. Have a great day.