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| General Finance Discuss general personal finance issues and home accounting not covered on the other finance boards. |
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09-27-2007, 01:32 PM
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Labor Market Seems to be Stronger then Anticipated
The Department of Labor released its reading for initial jobless claims earlier today which matched its third lowest year-to-date reading of 298,000 and it was the third decrease in the past four weeks which signals that the labor market is stronger then most economists expected.
The weak August payroll data gave the Fed its final push to lower rates last week and as more data becomes available after the rate cut the more evident it is that the Fed overreacted and that the aggressive 50 basis point rate cut was neither necessary nor a smart economic move. It is also evident that Ben Bernanke is not capable of the position he currently holds and should be replaced by a competent candidate as soon as possible as to prevent further economic damage. After the aggressive rate-cut commodity prices have pushed into new record territory, both hard and soft commodities, which are likely to impact inflation in the future, the dollar fell to multi-year or all-time lows against a basket of global currencies which will likely increase the trade imbalances, the labor market remains tight and could pressure wage inflation, mortgages are likely to increase as the 30-year bond yield has not moved and remains above the Fed Funds Rate and is likely to pressure mortgage rates upwards which will continue to hurt the housing market and the credit crisis, which was caused by extremely low interest rates for an extended period of time, will likely continue to unfold and have a deeper economic impact. Problems in the housing market spread from sub-prime to selected areas of the prime market and the credit crisis seem yet to completely unfold as car loan deficiencies are on the rise and add to the deficiencies in other sectors of the credit markets. Investors pushed equities higher in hope of more weak economic data which would give the Fed more reason to cut rates but most investors should be aware of the fact that an economy as big as the U.S. economy will take time to recover and won’t do so after a Fed rate cut. It usually takes between 6 - 12 months for an adjustment to the Fed Funds Rate to work its way through the economic pipeline. The current slowdown in economic activity should be expected to continue and likely accelerate next year until it matures into a recession; it will take time for the economy to work its way out of a recession. The current expectations of many investors that cheer weak economic data with the hope of continued rate cuts by the Fed seem rather idiotic in regards to the entire economic landscape. What do you prefer? Do you prefer a Federal Reserve that keeps interest rates on hold or hikes interest rates in order to combat inflation and inflationary expectations due to a booming economy? Or Do you prefer a Federal Reserve that lowers rates due to a decelerating economy with increased chances of a recession? 
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