Money! About That June Jobs Report (The Fed’s Balance Sheet Still Out In Force!)

Confounded Interest ^ | 07/03/2022 | Anthony B. Sanders

[Browns Ultra Fan]

The Federal Reserve’s policies remind me of the Cabaret tune “Money.” There is still almost $9 trillion in monetary stimulus outstanding.

For all the economic cheerleaders out there like CNBC about the June job report, they generally ignore what is driving the jobs report: The Federal Reserve!

Take the US U-3 unemployment rate. The Biden Administration is proud of the unemployment rate of 3.6%. But if you look at the chart of unemployment relative to The Fed’s balance sheet expansion due to Covid lockdowns, there is still almost $9 trillion of Fed stimulus outstanding.

Of course, the lockdowns were pure economy killers, so opening the economies again led to the unemployment rate falling to 3.6% which is still higher than before the Covid outbreak. But The Federal Reserve has been painfully slow at shrinking its balance sheet, leaving almost $9 trillion in monetary stimulus outstanding.

Take average hourly earnings growth. The media is all smiles as US wage growth declined to 5.1%, much higher than pre-Covid.

Then we have inflation, at 40-years highs thanks to massive Fed stimulus (and Federal spending).

And if we deduct inflation from average hourly wage growth, we see REAL wage growth declining at a -3.25% YoY clip.

Lastly, we have the US Dollar. Nothing has been the same since the financial crisis of 2008 and the entrance of The Federal Reserve distorting the economy and prices. Not to mention the US Dollar.

The Fed leaving its monetary stimulus out in force for so long is a major policy error. So what happens when The Fed actually gets serious about withdrawing the monetary stimulus (likely after the midterm elections)?

[Browns Ultra Fan]

The Fed won't remove the stimulus until AFTER Republicans win the midterm elections.

[Starboard]

Absolutely right, timed so some of the economic pain can be associated with the Republicans.

[P.O.E.]

The “unemployment” rate is a bit of misdirection.

[Soul of the South]

“The “unemployment” rate is a bit of misdirection.”

If you look at the government’s own statistics there are 99 million Americans of working age who are not considered in the workforce. Some are non-working spouses, some are members of the permanent welfare class, some are adult millennials playing video games in their parents basements, some are trust fund beneficiaries, some are early retirees.

[hinckley buzzard]

Yes. Competent economists will tell you that unemployment rates are not leading indicators of recession. Employment is typically highest just before recessions set in. Given all the other indicators of trouble ahead, the low unemployment rate should be seen as a warning signal.