Fed Up Friday: Aug. 27 – Sept. 2

It’s been a week since Janet Yellen’s talk at Jackson Hole. Learn more about the aftermath and what’s to come in this week’s edition of Fed Up Friday.

New Job Numbers Bad News for Possible September Rate Hike

Employment numbers for August came in this morning, and, at just 151,000 newly added workers, they’re lower than many were hoping. The official unemployment rate remained at 4.9 percent. Average hourly earnings grew only 0.1 percent, bringing the 12-month increase in wages to 2.4 percent. The wage increase is said to be ahead of inflation, but that’s only if you consider the fuzzy consumer price index numbers the Fed uses to make their data dependent decisions. Gold prices jumped around $10 per oz at the news.

Recent Hawkish Fed Comments Aren’t Convincing Skeptical Investors

Evasive language and ambiguous proclamations from the Fed are starting to irritate many traders. Janet Yellen’s speech last week was more of the same as the chairwoman, yet again, speculated on the possibility of a September rate hike. The market’s initial reaction suggested investors saw a hawkish future, but the feelings didn’t last.

Many traders, including David Man of RMG Wealth Management, are still skeptical and confused. “This was a chance for her to either clarify near-term Fed policy or to outline a new framework for future monetary policy, which she failed to do in our opinion,” he said.

Fed Relying on Surveys Not Data to Inform Monetary Policy

The Fed likes to find ways of proving they’re on the right track with fluff data that doesn’t really mean much. Take for instance their use of public surveys to determine whether or not their inflation numbers are on track. Checking with the general public about monetary policy sounds like a great idea until you realized they have distorted views of inflation.

For instance, in 2013 one of their surveys found that nearly half of respondents thought that inflation was 5% when in reality it was only 1.5%.

An economist at the Fed of St. Louis, William Dupor had this to say about the numbers: “The above evidence suggests that monetary policy makers may want to think hard about how they use individual inflation expectations surveys to inform monetary policy — at least until the nation’s economic education program raises the public’s understanding of inflation.”

Morgan Stanley “Found Little at Jackson Hole” to Sway View on US Treasury Market

Morgan Stanley declared it doesn’t expect any rate interest rate change for September, citing nothing was said by the Fed at Jackson Hole to change its mind. Different sources have the probability of a September hike resting somewhere between 36% and 49.5% odds.

Morgan Stanley strategists Matthew Hornbach and Guneet Dhingra explained their feelings, “While August payrolls present an obvious risk, we continue to believe market-implied probabilities for a September rate hike will end at zero, not 100.” Morgan Stanley recommends investors continue putting money into US sovereign debt.

Next Recession Coming: -2% Interest Rate on Horizon

Peter Schiff has been saying it since 2008, the next recession is still on its way and it will be worse than the last. New data from Marvin Goodfriend, former Fed policy advisor, believes the next recession will require the Fed to cut rates to -2%, a rate lower than any other global central bank has done before.

“In five of those [eight total since 1960] recessions, the Fed had to push the federal funds rate 3.5 percentage points below the 10-year bond rate,” Goodfriend explained. “So if that happens this time around, we would have to push the federal funds rate to minus 2%.”

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