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 Coins2Day 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
[email protected]
TOP NEWS
Gas demand
The EU’s demand for natural gas was nearly a quarter below the five-year average in November, figures show, suggesting some success in reducing the bloc’s reliance on Russian gas. November was unseasonably warm, which certainly helped, but the big driver was reportedly industry cutting its gas consumption—with crazy high prices being a strong incentive. Financial Times
Google News
New Zealand may follow Australia and the EU in forcing Google and Facebook to pay news publishers for reproducing their content. Australian regulators said Friday that the law is a success there, and it should be applied to Twitter and TikTok too. Canada has a similar bill on the table. Wall Street Journal
Vodafone CEO
Vodafone Group CEO Nick Read will step down at the end of this month, after four years in the role. The European telecommunications giant’s share price has nearly halved during that time. Read: “I agreed with the board that now is the right moment to hand over to a new leader who can build on Vodafone's strengths and capture the significant opportunities ahead.” Reuters
AROUND THE WATERCOOLER
OPEC+ opts to ‘hunker down’ amid surging volatility and market uncertainty, holds steady on oil production, by Bloomberg
‘How could you have an unemployment-less recession?’ Bank of America CEO Brian Moynihan says the latest jobs report supports his prediction of a ‘mild’ downturn, by Nicholas Gordon
Sam Bankman-Fried’s ‘I screwed up’ messaging is about lawsuits and penalties vs. Jail, says U.S. Securities lawyer, by Steve Mollman
China dumping its draconian ‘zero COVID’ policy could come at the huge cost of rampant infections: ‘This will spread like wildfire’, by Erin Prater
Tennessee Gov. Bill Lee mulls tripling fee for electric-vehicle owners, adding express toll lanes to pay for roadway projects, by Associated Press
This edition of CEO Daily was edited by David Meyer.
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