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May Jobs Report Takes June Rate Hike Off The Table – SchiffReport

  • It was a few weeks ago, following the release of the FOMC meetings, in which the various governors appeared quite hawkish in their tone
  • They were talking about the resurgent U.S. economy, the strengthening labor market and that they thought it would be appropriate to raise interest rates in June
  • As a result of that, the markets reacted, the dollar had a big rise, gold dropped
  • Gold had risen to almost $1300 when everybody thought the Fed wasn’t going to raise rates
  • Now as soon as the Fed changed the conversation, and they put rate hikes back on the table, gold touched below $1200
  • The dollar index got as high as 96 earlier this week
  • But the catalyst for the rally of the dollar and the decline in gold was the Fed, and the anticipation of rate hikes coming this month
  • In fact, in the days and weeks that followed the release of the unexpectedly hawkish FOMC minutes various Fed officials were out giving speeches
  • Every one of them talked about how it was going to be appropriate to raise rates, how we are bouncing back from the unexpected Q1 weakness, and that now the Fed is finally going to resume normalizing rates
  • The first time they raised rates was December last year; of course they talked about it all year before they finally went up by a quarter point
  • If they went up by another quarter point in June of this year, it’s still, it’s still a pace much slower than Greenspan used
  • He was moving up a quarter every time they met
  • This would be a quarter every 6 months
  • Even if the Fed were going to raise rates in June, that would have been the only hike of the year
  • I didn’t even believe that they were going to do it in Juneof
  • If you listen to one of my recent podcasts at the beginning of the June rate hike talk, I was saying,
  • “How can they talk about a June rate hike? They haven’t seen the May jobs report, which will come out in the first week of June, and if that jobs report is weak, they’re not going to raise rates
  • And even if they did raise rates, it’s too little too late
  • It’s not going to be good for the dollar, it’s not going to hurt gold because the FOREX markets and the metal exchange markets have priced in far more rate hikes than the Fed could possibly deliver
  • In fact if they did raise rates, that would be the end of the cycle and by the end of the year they would be cutting rates
  • The market is anticipating a normalization
  • And if you remember, too, it wasn’t just that the Fed was going to raise rates, they were going to shrink the balance sheet
  • Janet Yellen was saying she was going to get the balance sheet back down to where it started
  • I was saying she was lying back then
  • The balance sheet has not shrunk at all
  • That is because the proceeds of every maturing bond have been reinvested
  • Every nickel earned in interest has been reinvested also
  • So the Fed hasn’t even started to unwind the balance sheet, and they’ve barely raised interest rates
  • But I did say that if we got a weak jobs report, that would clearly take rate hikes off the table
  • I believe they were never on the table and that’s exactly what we got June 3
  • The Labor Department dropped a bombshell on the markets
  • A relative weak report of 170,000 was expected due to the Verizon strike
  • The actual number of jobs created in May was 38,000
  • That is the lowest number in 6 years
  • But it gets worse: they revised last month’s number, which was also weaker than expected, from 200,000 to 123,000
  • The expectation was that this number would be revised up
  • They even revised down the month before by another 10,000
  • You’ve got 123,000 jobs in April and just 38,000 jobs in May
  • It gets worse: the labor force participation rate dropped all the way down to 62.6 from 62.8
  • About 660,000 Americans threw in the towel
  • That is why the unemployment rate dropped to 4.7%
  • It didn’t drop because unemployed workers got jobs, it dropped because unemployed workers stopped looking for jobs
  • And when they stop looking for jobs, they are no longer counted as unemployed, even though they don’t have jobs
  • Wages were barely up and hours worked went down as more people settle for part time jobs
  • The number of Americans not in the labor force is now at a new all-time high
  • A staggering numbers of Americans are unemployed, underemployed, out of the labor force