Ep. 604 – An Economic Quagmire

The Kapital News
The Kapital News
Ep. 604 - An Economic Quagmire

From one economic figure to the next, it is never really good enough. At least not for the Federal Reserve and other major central banks to truly begin normalizing their respective balance sheets, let alone even discuss the topic. They are concerned how tapering and/or any subsequent increase to interest rates will impact global equity, bond, and currency markets. And rightly so. The Fed attempted to taper and increase interest rates only a few short years ago and it ended with equity markets dropping nearly 20 percent in the fourth quarter of 2018. The economy and equity markets could not digest a Fed’s balance sheet below $4 trillion or the Federal Funds Rate just north of 2 percent. Fast-forward to a balance sheet near $8 trillion and the FFR at the zero bound, and you can surely see their predicament. Equity and bond prices have been able to increase over this pandemic period for one reason and one reason only and that is due to the major liquidity injections by central banks and federal government programs. Remove these items and prices are nowhere near these levels. Policymakers are trapped, they know it, and they are getting more and more nervous by the day.

Initial jobless claims came in at 385,000 for the week ending 29 May. This is the lowest figure since 14 March of 2020 when the number was 256,000. The number from last week was revised slightly lower by 1,000 to now stand at 405,000. In aggregate, some 15.4 million Americans continue to claim some form of unemployment insurance. This gives a de facto unemployment rate of 11.1 percent. The official unemployment rate is currently 6.1 percent. The May jobs report will be released tomorrow morning by the Bureau of Labor Statistics, BLS, and it will be watched closely by global markets. Analysts are looking for nearly 1 million jobs having been added to the roles for the month of May. A recent report released by ADP has stated that 978,000 private sector jobs were added in the month of May. Recall that last month, expectations were for nearly 1 million job gains for April, however, the official statistic came in at 266,000. Will May be a repeat of April or more in alignment with market forecasts?

The Federal Reserve’s balance sheet has hit another all-time and now currently stands at $7.935 trillion. This is a week-over-week increase of some $32 billion. It is somewhat laughable how the Fed stated only yesterday that they will begin to taper their holdings of corporate bonds, which amount to $14 billion. And even this is supposed to be a process that could take until the end of the year. Meanwhile, they added $32 billion to their balance sheet in one week alone! The Fed also remains committed to their QE policy of purchasing at least $120 billion per month in US Treasuries and mortgage-backed securities. M1 and M2 money stock has also been updated and both currently stand at all-time highs, as of April. Coming in at $18.935 trillion and $20.109 trillion, respectively, really puts things into perspective, especially when considering that M1 was at $4 trillion prior to the pandemic and M2 was at $15.5 trillion. So what exactly did we get for all of this funny money? Because we can assure you that this is no free lunch. Jay Powell, Chair of the Fed is expected to speak tomorrow. Most likely this will be some form of damage control for the jobs report whether the number is good looking or ugly. These markets need continued hand-holding in order to grind higher. Talk about a command and control economy. Land of the free, eh? Stay diversified, stay vigilant, and stay with The Kapital News. #Economy #Inflation #FoodPrices #Gold #Silver #Protests #Riots #Liberty #USA #Leadership #Revolutions #EndTheFed #bananarepublic #FireCongress #Jobs #Bailouts #Debt

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