For the first time since April 2021 there are more unemployed than labor searches. Chicago’s futures are already assumed by the drop in a quarter cord (25 base points) at the 17th meeting. Can it be stretched at half a point? The three Fed problems.
The US added 22 thousand net jobs in August, far from the 75 thousand expected. And even more of the 168 thousand, average per month, of 2024. President Trump got what seemed impossible. He managed to cross and stop a formidable machine to create jobs, the same that resisted the entire rate of 2022 and 2023 (550 base points counted from scratch) without disturbing. His strength, then, avoided the recession that all forecasts foreshadowed. Instead, Trump 2.0 did. On your own, go up of tariffs and deportations through. For the first time since April 2021 there are more unemployed than labor searches. The Fed, before, must take action on the matter. Chicago’s futures are already assumed by the drop in a quarter cord (25 base points) at the 17th meeting. Can it be stretched at half a point? It is unlikely (8%). In September last year, Jerome Powell, the head of the Fed, did not hesitate. This Tuesday, the annual job review – which covers the period from April 2024 to March 2025 – would have to mochar a figure greater than half a million to convince him to repeat the surprise play.
The labor market suffered a sharp brake. In August, the labor report detected 22,000 new net jobs, but 21 thousand of those accounted for in June and July were sneaky. In June, there was a fall (-13 thousand), the first from the pandemic in 2020. If a single sector -Salud is excluded, which for the second consecutive month contributes more than 120% of the total number of new hiring- the private sector continues in net destruction mode. In Jackson Hole, Powell spoke of a “curious balance” in which labor supply and demand falls, and the unemployment rate is preserved. But this rose again in August – 4.3%, two tenths above June – and the demand for work did not fall, but increased. Moreover: People who are not in the workforce, but still want to work, increased by 179 thousand people. If they were computed, the unemployment rate would have climbed from 7.6% to 7.8%. And a broader measure – the so -called U6 unemployment rate – that arises from also adding to those who perform part -time tasks because they do not find a full -time shell, rose from 7.9% to 8.1%. The message is overwhelming. Houston, we have a problem.
Business complaint and problems lurking to the Fed
In business activity surveys the complaint is repeated. Above all, in the manufacturing industry, which the president paradoxically wants to encourage. Let’s review the ISM report: “Too much uncertainty for us and our clients in the field of tariffs and economics of the US and the world”. “Made in the USA` has become more difficult for tariffs in many components … without stability in trade and economy, hiring and capital spending are frozen.” We take another source, the Global S&P PMI report: “Business optimism fell to one of the lowest levels of the last three years in the means of growing concerns about uncertainty and the fall in demand caused by the federal government’s policy, especially by tariffs and the associated rise in price pressures.” And record, this report estimates that the economy, unlike the labor market, was not paralyzed. Not yet. Its reading is consistent with a solid growth of 2.4% in the third quarter. That strength rescues the balances (and the advances of the executives) that Wall Street examined with great dedication. It is the reason that explains that the bag is worried with the news, but the quotes cling to the heights. The economy did not spoil, the artificial intelligence bonanza persists, and the Fed will come soon to help.
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The problems that lurk to the Fed are two. Inflation and labor market. And the two operate on the rise. But the risk balance changed quickly. And the hawks of the institution took note. “Monetary policy is marginally restrictive. I think price stability is the main concern, but the labor market is cooling enough for some policy relaxation – probably in the order of a quarterfinal – is appropriate in the remainder of the year,” said Raphael Bostic, of the Atlanta Fed. The very influential John Williams, of the Fed in New York, and one of the toughest, Alberto Musalem, of the Fed of St Louis, both in voice and vote on 17, agreed on his turn. They relativized the impact of tariffs on inflation and accentuated the danger that the anemia of the labor market deteriorates rapidly. That was the approach of governors Chris Waller and Michelle Bowman when they voted in favor of a rates, in Disidence, in July. The recent data signs it. The maximum boss, Jay Powell, keeps silent. But, even so, what was disagreement in July, promises to be a final sentence at the next meeting of 17. And I would not surprise that it was a unanimous decision.
Bonuses and a Damocles sword
Fed fights with a third problem, and is not less: its own independence. Just as César’s woman not only has to be honest but seem, monetary policy must also keep her credibility. Hence, the most important reaction after the employment report has been that of the Treasury Bond curve. What would happen if the Fed lowers rates and long rates are not convinced of the reasons and do not accompany? What if they climb the counterfeit? How stimulating for work drought would be such a reduction? How much could be insisted with other successive cuts? Fiscal dominance hangs like a Damocles sword on the head of the Fed. And it’s not just for Trump. Apparently with the generalized rise in 30 years, it hangs on the central banking of all advanced economies, except Switzerland. And it is not a theoretical challenge. Last year, starting when Kamala Harris still fought the electoral race, the Fed could its rate 100 base points and the 10 -year rates climbed 120.
That independence exam surrendered on Friday. Chicago’s futures took for granted rates next 17. The bond curve was not retailed. And couple fell into all their deadlines, keeping the Spreads. That is, the temporal premium (which was rising) did not increase either. There is more than half a point of light between the rate of 10 years and that of 2 which gives an idea of the degrees of freedom that the Fed has to decide and seem honest, and thus be effective, despite the incessant harassment of the White House.
Source: Ambito
