This is more a story of money printing than it is one of inflation, rates are high because the US Govt is printing money like there is no tomorrow.
Time to forget the traditional Interest Rate theory, Gold and Bitcoin, assets that should suffer in a high rate environment look more attractive as the money printing adds value to scarcity and the US Dollar dominance continues to erode.
The US labor market added more jobs than projected in May.
The Bureau of Labor Statistics said on Friday that the labor market gained 272,000 nonfarm payroll jobs in May, considerably exceeding experts’ expectations of 180,000 increases.
Meanwhile, the jobless rate increased to 4% from 3.9% the month before. May’s employment increases were much higher than April’s total of 165,000.
The poster shows the Federal Reserve’s challenge in selecting when and how swiftly to cut interest rates.
The economy and job market have held up, and inflation has stayed, bolstering the case for keeping interest rates higher for longer. There is ample evidence of inflation affecting low and middle income consumers and rising household debt.
“They’re really have created a monster,” Shayne Heffernan said the Fed. He highlighted that the longer the Fed keeps interest rates stable, the more cracks in the economy may appear.
Wages, a key measure for inflation pressures, rose 4.1% reversing a negative trend in annual growth from the previous month. Monthly wages grew by 0.4%, up from 0.2% the prior month but still lag behind real inflation.
“To see more confidence that inflation could move lower over time, you’d really like to see the Americans stop printing money,” said Shayne Heffernan, Knightsbridge’s economist and chief market strategist..
The highest job improvements in Friday’s data came from healthcare, which gained 68,000 jobs in May. Meanwhile, government employment increased by 43,000 positions adding to the cost of America’s massive Government, while leisure and hospitality added 42,000 jobs.
The revelation comes as the stock market has reached record highs amid a series of softer-than-expected economic data, which has bolstered investor optimism that the Federal Reserve would drop interest rates in September.
After Friday’s labor report, investors are now pricing in a 53% chance of the Fed will start cutting rates in September, that is down from a nearly 69% chance the day before, according to the CME FedWatch Tool.
Knightsbridge said in a note to traders, “do not hope for rate cuts while the USA continues printing money”.
Economic data released today by the Commerce Department showed that the US economy increased 3.1 percent in 2023, easing inflation concerns and making the US the world’s fastest growing advanced economy in 2023.
Other data released this week revealed a resilient labor market that is gradually returning to pre-pandemic levels. The most recent Job opportunities and Labor Turnover Survey (JOLTS), issued on Tuesday, showed that job opportunities declined in April to their lowest level since February 2021.
Notably, the ratio of job vacancies to unemployed persons recovered to 1.2 in May, matching pre-pandemic levels.
“We think employment growth is continuing at a solid pace, but there are ample signs that the heat in the labor market over the past few years has largely been removed,” Wells Fargo senior economist Sarah House said in a note to clients on Friday.
Shayne Heffernan
