On Friday, the Bureau of Labor Statistics released its largest tasks report, which showed that friendship areas, which have spent the past half-year coming back to reality as they face the fact that the Federal Reserve’s war on inflation is backsliding, rose. Even though the April jobs report was largely positive, the unemployment rate was largely unchanged at the close of a half-century low of less than 4 % despite the 175, 000 employment added proving to be lower than economists had anticipated, the Fed’s ability to cut interest rates significantly increased.
Call it a” swan song” of the professional investor class ‘ post-COVID delusions, which have consistently been refuted and denied the dreams of the enduringly postponed” Fed pivot.” Treasury futures began the season pricing in projections of six or seven rate cuts, more than double the three rate cuts telegraphed by the Federal Open Market Committee’s Summary of Economic Projections, only as bond markets continued to determine early that the Fed may tilt throughout 2022 and 2023.
Therefore the statistics came in, putting the desire to suicide. Article private consumption expenditures prices, article customer price inflation, headline general inflation, and core general inflation have now increased for two straight months. Of the Fed’s major prices steps, just core PCE and core CPI have stagnated, the latter at almost half the Fed’s optimum inflation target of 2 %. And on a three- month annualized basis, a more precise picture than the annual measure, the Fed’s preferred inflation measure of core PCE skyrocketed from 3.7 % in February to 4.4 % in March, more than twice the Fed’s 2 % maximum inflation target.
By the end of April, bond markets predicted a 1 in 4 chance that the Fed would not cut rates in 2024 and a more likely than not-favorable chance that it would not do so before Election Day.
But the free money delusion, like any addiction, is hard to kick. Investors saw the April jobs report as evidence that the unemployment rate has n’t fallen to an unprecedented two years below 4 % despite Fed Chairman Jerome Powell’s promise on Wednesday to cut rates “longer than previously anticipated” given “lack of further progress” on inflation.
The odds of having at least one rate cut by June and July were nearly unanimous when Treasurys Futures predicted that the Fed would not cut rates at its June meeting. The odds of at least two rate cuts by Election Day and 60 % by the year’s end have also been predicted by bond markets, which is a dramatic change from the earlier this week, when Treasurys showed a two-thirds chance of no more than one rate cut in all of 2024.
Given the raw data of April’s jobs gains, this adjustment is little more than wishful thinking. Government jobs made up less than 5 % of the jobs added to the economy in April, in contrast to alarming data from earlier months, when a plurality of the jobs were contributed by increasing artificially by artificially increasing the appearance of a naturally robust labor force. The crisis, which has been lamented by monetarists and budget hawks for four years, continues to exist, with the majority of able-bodied adults retiring prematurely from the workforce and accelerating the welfare state’s insolvency, but it does n’t appear to have changed much in any significant way, which would allow the bond markets to fall backward in their hopes for a rate cut.
The gap between the 7.0 million people who are unemployed and those who are n’t on the labor market: https ://t.co/2shOtmNtaB pic makes the situation even worse. twitter.com/XOSfkGpHah— E. J. Antoni, Ph. D. ( @RealEJAntoni ) May 3, 2024
Even though the labor market has cooled slightly from its way of being too hot to handle highs, both job growth and economic growth are still far too robust to be justified in cutting interest rates because the Fed’s fight against inflation has actually lost ground because the majority of its primary inflation indicators show that price instability is returning in a redux of the 1970s.
