U.S. Economy Created 175,000 Jobs in April…The unemployment rose to 3.9%.
What it means— Break out the champagne glasses, but don’t pour it yet. The lower jobs numbers and higher unemployment signal a slowing economy, which calls for the Fed to cut rates. Notice that the bullet point after this recaps the Fed meeting that occurred on Wednesday, while the jobs number was released Friday morning. While investors have pushed the markets higher, the changes in jobs and unemployment are really small. As the Fed tells us, they are looking for more data.
It is likely that the hourly earnings (up 0.2%, lower than the expected 0.3%) gave investors another reason to cheer. Lower earnings growth shows less pressure to raise wages, which should ease the plight of employers who have to pay more to attract workers.
So, once again, two (or more) Fed cuts this year are on the table…unless future data call for something else. This is what happens when you manipulate an economy for 15 years. People try to guess the next move by watching the puppeteer instead of working with the real economy.
Federal Open Market Committee Keeps Overnight Rate at 5.5%… Fed Chair Jay Powell noted that inflation is not where the bankers want it yet, so they will hold rates here for longer.
What it means— Everyone knew this beforehand, which is why the reaction to the statement was such a nothingburger. Forecasters were making stuff up earlier in the week, asking if the Fed might raise rates instead. Right, like that wouldn’t break the markets. Powell has said many times himself and many times through his mouthpiece at the Wall Street Journal that the central bank should not be in the surprise business. They will telegraph changes well ahead so that investors can get used to them. The question is whether they will cut rates once or twice this year. If history is anything to go by, they will imply and telegraph their intentions long before they do anything.
Federal Reserve Reduces Rate of Drawdown of Treasuries in Balance Sheet… The Fed hinted it would let fewer Treasury bonds mature or be sold, which leaves the Fed owning more Treasury bonds for longer.
What it means— Everyone knew the Fed would slow down on reducing its holdings. The Fed still will sell $35 billion of mortgage bonds per month, but instead of cutting its Treasury sales from $60 billion to $30 billion, or by half, they are cutting its sales to $25 billion. On a balance sheet of $7.4 trillion, the change of $5 billion doesn’t mean much, but it shows intent. The Fed is gradually moving to a neutral stance, and then it will start easing. While short yields are high and the curve is inverted, there’s plenty of money sloshing around the system, and a liquidity crisis was the worry. With the Fed leaving so much on its balance sheet, equity investors remain in the driver’s seat.
Antarctic Volcano Creates Clouds of Gold… Antarctica has 138 volcanoes, with nine listed as active. The volcano on Mount Erebus shoots “bombs” of partially molten rock from time to time, but that’s not unusual. Sometimes the volcano emits a burst of gas, which sprays tiny crystals that include gold dust. The scientists estimate the gold is worth about $6,000 per day, but to collect it, you’d have to be near an active volcano on Antarctica. There must be easier ways to make money.
Data supplied by HS Dent Research
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