This Is Not Your Grandpa's Inflation Problem

The Fed is starting to play catch-up with inflation signals from the bond market as evidenced by the Fed Funds Rate finally being pulled upward by the implications of the rising 3 month T-bill yield, among other more obvious signals like the long since rising 2yr Treasury yield and ongoing inflation headlines we read about every day.

After the June FOMC meeting, an additional .5% hike will be in the bag as CME Group traders are forecasting.

But as noted in this post about the May ISM (manufacturing) and Payrolls, supply chains are ever more involved in the narrative. Captain Obvious wants you to know that an economic drag is being caused by the past and present COVID-19 shutdowns, the war in Ukraine, and increasing global political tensions and saber rattling. Continue reading "This Is Not Your Grandpa's Inflation Problem"

Strong Jobs Report Supports Continued Monetary Tightening

A Bloomberg survey of economists indicated that the medium estimate for jobs added in May would show that approximately 318,000 new jobs were added. Additionally, the survey also predicted that the unemployment rate would fall to 3.5%. A Wall Street Journal survey of economists forecasted that employers would add 328,000 jobs in May. The survey also anticipated that the unemployment rate would fall to 3.5%. Both surveys underestimated both the number of jobs added in May 2022 and the unemployment rate.

The U.S. Bureau of Labor Statistics released the latest jobs report, which said, “Total nonfarm payroll employment rose by 390,000 in May, and the unemployment rate remained at 3.6 percent, the U.S. Bureau of Labor Statistics reported today. Notable job gains occurred in leisure and hospitality, in professional and business services, and in transportation and warehousing. Employment in retail trade declined.” Continue reading "Strong Jobs Report Supports Continued Monetary Tightening"

Inflation: Is The Glass Half Empty Or Half Full?

The inflation rate rose 0.2% in April; is the glass half empty or half full?

Today the BEA (Bureau of Economic Analysis) released the PCE (personal consumption expenditures) for April 2022. This report is the preferred inflation gauge used by the Federal Reserve as a key component to shape their forward guidance of monetary policy. Continue reading "Inflation: Is The Glass Half Empty Or Half Full?"

The Fed Giveth, The Fed Taketh Away

With the stock market tanking and the Federal Reserve finally starting to raise interest rates and reduce its $9 trillion balance sheet, it's probably a good time to look back and determine how much of the stock market's gains in the past 12 years or so have been built on extremely accommodative Fed monetary policy. That could provide some idea of how much we can expect the market to drop once the Fed has finally stopped the tightening process, and when stocks might start rising again.

Since reaching its all-time high of 16,057 back on November 15, the NASDAQ had dropped nearly 29% as of May 18, when it closed at 11,418. Likewise, the S&P 500 is down nearly 18% since it hit its all-time high on December 27, while the Dow is off more than 13% after reaching its peak on that same day.

Those declines followed several indications from Fed Chair Jerome Powell and other Fed officials that the central bank had finally conceded that inflation wasn't "transitory" after all and that it had to act aggressively before inflation got totally out of control.

The Fed raised its benchmark interest rate by 25 basis points on March 16, its first rate increase since December 2018, and another 50 bps on May 4, its largest increase since May 2000. The Fed's next meeting is scheduled for the middle of next month, at which it is expected to vote for another 50-bp hike, followed by several more by the end of the year. If the Fed raises rates by 50 bps at each of its next five meetings, including the one right before Election Day, that will push its benchmark rate to Continue reading "The Fed Giveth, The Fed Taketh Away"

Gold Posts Solid Gains For The Week

Gold prices closed higher on the day and the week resulting in solid gains. As of 5:50 PM, ET gold futures basis most active June contract is currently up $3.90 or 0.21%, fixed at $1845.10. Considering that gold futures traded to a low this week of $1785 and closed near the highest value this week of $1848.60, it had a good week.

Gold pricing had been under pressure for the fourth consecutive week before this week's trading activity resulting in defined technical chart damage with it breaking below its 200-day moving average last Thursday, May 12. This week's low occurred on Monday, May 16, when prices hit a low of $1785 and traded to a high of $1825 before closing above its opening price on Monday and above Friday's closing price at $1813.60. On Tuesday, gold traded to a higher high and a higher low than Monday, even though gold closed fractionally lower than its opening price. On Wednesday, gold traded to a lower low and a lower high than Tuesday's price action, but that all changed on Thursday. Continue reading "Gold Posts Solid Gains For The Week"