#045 Caleb Franzen: The Fed Is Being Challenged By Ongoing Labor Market Dynamics

Caleb Franzen (@CalebFranzen), senior market analyst at Cubic Analytics, joins Julia La Roche on episode 45 to discuss macro, markets, Bitcoin, and more. A big theme in the conversation centers around the labor market and the Fed. Franzen discusses the Federal Reserve's prioritizing of three methods for reducing demand to bring down inflation, including creating an inverse wealth effect, increasing the cost of capital, and softening the labor market. The Fed suppressed demand in two of its three approaches, but the dynamics in the labor market are keeping demand elevated and offsetting these effects. That's why the Fed focuses on the labor market softening this year. As Franzen puts it, the labor market is "the last box that they're really looking to check to ensure that inflation is on a sustainable path lower." Franzen makes the case that the Fed balancing the scales of its dual mandate — maximum employment and price stability — will be a thin line for the Fed to walk in 2023, with the labor market being historically tight (full/max employment) and inflation at historically elevated (price instability). 0:00 Macro view 1:05 Historic tightening cycle 2:04 Not a rosy picture for risk assets 3:25 Why the Fed will continue to raise after inversion 5:30 Inflation likely to moderate lower 7:16 A soft landing still on the table? 8:54 3 dynamics that stood out in the NFP data 11:18 The Fed can’t be too happy right now 12:30 Market outlook 16:25 Became macro obsessed in college 20:53 Enthusiasm capitulation then price capitulation 29:08 Bitcoin 30:00 Speculating on bitcoin is dead 36:00 Content diet