Even by holding the Fed Funds rate constant, monetary policy will get increasingly tight as the real rate moves higher on the lagged normalization of core CPI following all other categories.

There's been a material shift in inflation pressures since the summer of 2022, specifically when excluding rent/shelter. Core inflation almost always has its biggest decline in the one year after the recession is over.

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Very informative conversation with a few pros. And congratulations to @JackFarley96 for doing some really outstanding work over the last few months bringing these conversations together.

This thread outlines some of my thoughts on employment, confirmed by today's claims data. We're not doing the secular tight thing today, right @BobEUnlimited ?

There has been a clear inflection in the labor market when taking a three-dimensional view of a basket of composite indicators. Obviously, this can't be seen through one headline number. Let me know where you disagree and share if you agree. 12/12

How widespread? We can see that 33% of states are showing a level of continued claims more than 10% higher than the 2022, 2019 and 2018 baseline. Look at the inflection around March. 11/

So the level of NSA continued claims is rising above the average of (2022, 2019 and 2018) or the average of just (2019 and 2018). What's the magnitude? Claims today are about 10% higher than the more objective baseline level, which is normally on par with recession starts. 10/

Continued jobless claims are 28% higher than a year ago, a level not seen outside of recessions. Some people argue that 2022 was an outlier, so we shouldn't compare it against that year. This chart shows the 2023 level of claims vs. 2022, 2019, and 2018. 9/

I use this basket approach for many sectors of the economy. This chart marks periods when the Cyclical, Employment and Aggregate Coincident Indexes are all below 1.5%. Add it to the list of "this time may be different." 7/

Turning points in the business cycle, as the NBER tells us, should satisfy three conditions: depth, duration and diffusion. In other words, what's the magnitude of the change, length of the change and breadth of the change Sticking with labor, let's look at continued claims 8/

We can use the same process for leading indicators of employment, such as hours worked and initial jobless claims to show the business cycle progression of the labor market. 6/

Objectively, the labor market is dangerously close to contraction. Aggregate hours are starting to decline, and the unemployment rate no longer falling has pulled the index down. It should be noted that recessions often begin before labor turns negative (lagging indicator). 5/

A longer-term chart shows that a negative growth rate for the Coincident Employment Index is a recession 100% of the time with zero false flags. This makes sense because the components are the broadest measures of labor, and when growth is negative, that's a recession. 4/

The composite labor market index was rising sharply in 2021 but has flattened out. If we look at the growth rate, we can see that the Coincident Employment Index is growing at a 0.7% annualized rate. 3/

We first have to define the target or our best reading of the labor market. Should we use the unemployment rate, the household survey, the establishment survey, or what? Perhaps all... My Coincident Employment Index aggregates five of these labor market metrics. 2/

Here are a few charts on the labor market using my composite index and business cycle approach. 1/

@BobEUnlimited @EconBerger Thanks, Bob. I'll spell out some thoughts in more detail.

This post reviews how the NBER dates recessions. They look at six monthly indicators and one quarterly indicator. While controversial, their methods show it is possible the economy entered recession in Q4 or Q1, pending further weakness from here.

Jason, what do you make of the fact that 33% of states are showing a level of continued claims higher than the average of 2022, 2019, and 2018?