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When will the labor market cave to Fed pressure?

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Payroll growth typically slows significantly in the 2nd year of Fed tightening. Fast tightening cycles are more detrimental. A rising real fed funds rate implies weaker labor market conditions in 2023, with a stronger impact on interest-sensitive sectors such as manufacturing and construction. The expected increase in the unemployment rate shatters the soft landing scenario, but also paves the way for future equity gains.

Ned Davis Research | Economics | U.S. Focus | Monthly

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