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The federal reserve system, or FED, is the central financial system of the United States of America… [+] Changes in interest rates in the United States are getting a lot of attention.
The June jobs data was strong enough, with 850,000 new jobs added, to maintain the US economy’s healthy growth forecasts. Bloomberg estimates that real GDP growth will be 6.6 percent in 2021. Nonetheless, the specifics revealed enough employment market upheaval to put the Federal Reserve (Fed) on hold for a little longer. Before the news, some speculated that the Fed would announce a strategy to reduce asset purchases, often known as tapering, during its August meeting in Jackson Hole. Any tapering announcement should be postponed due to the noise in the jobs statistics.
Jobs And The Covid Recession
Bloomberg, Glenview Trust
There was considerable indication of reopening activity, as the service sector accounted for 642,000 of the 850,000 job gains, with 343,000 of those in leisure and hospitality. In addition, there were 230k employment gains in state and local education. While this is all good news, a closer examination of the headlines reveals some concerning indicators. The economy has still barely recovered 70% of the total jobs lost during Covid, and the unemployment rate has increased to 5.9% from 5.8%. Furthermore, the labor participation rate, or the percentage of all individuals of working age who are employed or actively seeking work, remained stable at 61.6 percent in June, significantly below the 63.4 percent pre-Covid level. Given the amount of jobs available, rising pay, and the degree of economic recovery, one would expect the participation rate to rise.
Markets will be watching the JOLTS job openings reading this week after the June jobs report. At over 9.3 million, the number of available positions is expected to establish a new all-time record. Furthermore, a record percentage of workers have left their positions voluntarily, according to this data. In conclusion, the JOLTS report should reaffirm both the solid employment market and the ongoing dislocation for the Fed.
Following the forward change in rate rise timetable forecasts at that meeting, the Fed minutes from their June 16 meeting will be of interest on Wednesday. While recent Fed statements and last week’s jobs data have allayed fears about the timing of the first rate hike, the minutes could reveal any shift in the committee’s thinking.
ADDITIONAL INFORMATION FOR YOU
If all goes according to plan, the Fed will announce tapering in the fourth quarter. The markets should be less concerned about the Fed suffocating the economic recovery with aggressive monetary policy because the Fed is unlikely to raise rates until 2023. If these views gain traction, the 10-year Treasury yield will likely climb from its current 1.42 percent level. Stock prices should continue to be supported by a less aggressive Fed, and value stocks, in particular, should benefit from continued economic expansion. Since the beginning of Covid, the performance of value stocks has been highly associated with the 10-year Treasury rate. Furthermore, value equities should do better if the Fed allows inflation to run a little higher until the job market heals./nRead More

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