If this week’s any indication, it seems as if the Fed is a divided house. Former dovish members are now suggesting tightening while others want to stay the course of QE and low interest rates. What’s more, the Fed itself is likely to become a political football if Donald Trump has his way. The Republican presidential nominee took aim at Fed Chair Janet Yellen this week, saying she was a puppet for Obama. All of this and more in this week’s Fed Up Friday.
The drama at the Fed continues to unfold after another high-ranking official, Governor Lael Brainard, expressed comments suggesting the US economy was still too vulnerable for a rate hike. At this point, the governing body seems divided about the health of the economy, which seems odd given their self-proclaimed “data dependency”. Either the data is indicating a growing economy or a shrinking one. Lack of consensus suggests a division in leadership and a delay in any rate hike at least until the end of the year.
Last Friday the stock market tanked following another monetary policy maker’s statements about interest rates. It seems investors are, yet again, willing to believe the Fed intends to raise interest rates despite the reality of a bad economy. Policy makers continue to keep the idea of rate hikes alive despite the knowledge they are powerless to do anything.
In a speech Friday morning, Boston Fed President Eric Rosengren suggested the time for a rate hike was getting closer and delaying could dampen economic gains: “A reasonable case can be made for continuing to pursue a gradual normalization of monetary policy,” he stated. “Failure to continue on the path of gradual removal of accommodation could shorten, rather than lengthen, the duration of this recovery.”
It seems like a long time has passed since all the hawkish talk from the Fed after the jobs report came out. That’s probably because this week has seen mounting evidence that a rate hike before December, or possibly even 2017, is now highly unlikely. Learn more about it in this week’s Fed Up Friday.
3 Reasons Fed Rate Hike Might Not Even Hit in December
Ever since the Jackson Hole symposium, a Fed rate hike in September has supposedly become more possible. But this week has brought a halt to all the speculation and a reversal of sentiment. In two short weeks, things have taken a swift 180 with chances of a 2016 decline seeming even dimmer. Michael Farr, President of Farr, Miller & Washington, can list three reasons why the next hike will be pushed to 2017:
- Considerable drops in job growth, wage growth and length of work week data. Some as low as 2010 numbers.
- Recent escalation of 3-month LIBOR, the rate at which banks lend to one another, is evidence of tightening financial conditions.
- The election draws closer, and likely economic fluctuation based on the results could make the Fed think twice about any economic tweaking for several months.
Another bad US economic indicator is becoming a focus for economic policy makers. Last month at the economic symposium at Jackson Hole, Janet Yellen said, “As a society, we should explore ways to raise productivity growth … improving our educational system and investing more in worker training.” Yellen is referring here to the production efficiency that occurs when incoming, better-educated college graduates enter the labor force, bring their new knowledge, and create better processes. This is commonly called the “productivity miracle” and has been a reliable economic phenomenon for 50 years.
Friday of last week brought in much weaker numbers than the Fed expected from the non-farm payroll report. That was the big bet Janet Yellen’s crew was going all-in for, but the jobs report wasn’t the only important figure hitting reverse, and definitely wasn’t the most important look at the overall health of the economy.
As Peter Schiff points out in his latest podcast, this “specter” of a jobs number that the Fed is promoting should not be nearly as influential as productivity numbers or the PMI manufacturing index, both of which were down yet again. All of these contributed to gains in gold and silver going into Labor Day weekend, and they are continuing to rise as concern for a September rate hike has all but disappeared.
Peter stated it clearly in this week’s podcast: “You know things are getting bad when the Fed has the general public believing what they say about hiking rates, and they still don’t do it. The moment they start telling the truth, that they can’t raise rates because the recession is out of control, is when this country can finally face reality and start recovering.”
After the last week’s lackluster jobs numbers were reported, gold futures got a big jump, halting a weekly decline. After the Bureau of Labor reported only 151,000 jobs were added last month, investors sought a safe haven in the yellow metal while hopes of a September rate hike were all but squelched.
The gold spike halted a weekly loss fueled by two weeks of so-called “hawkish talk” from Janet Yellen and other monetary policy makers.
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.
This article was submitted by Joel Bauman, SchiffGold Precious Metals Specialist.
It seems at least once a week, a Fed official is coming out of the woodwork to suggest the “possibility” of a September rate hike. Right now, investors are nearly split over whether or not that is likely to happen. What’s really prompting this more aggressive posture by the Fed? In his latest podcast, Peter Schiff looks at the real motives behind the faux-hawkish statements from the Federal Reserve.
Basically, it comes down to a bait-and-switch move by the Fed to create some wiggle room for actually doing nothing. Here’s an analogy: a fish monger tells his customers, “It’s possible I will raise the price of fish.” Since he’s created the idea that a price increase is possible, he can now tell my customers, “I’ve decided NOT to raise prices.” The fish seller wants his customers to appreciate how “inexpensive” the current price is. They will now feel as if they’ve gotten something (“inexpensive” fish) when in reality nothing has changed.
Holding physical precious metals continues to be in high demand around the world. In fact, the need for physical gold is so high that Australian-based mining company, Resolute Mining, is offering to pay out investor dividends in the yellow metal.
In an unprecedented move, the mining company’s new policy states that “shareholders with more than 5,000 shares can opt to receive their dividend payment in gold through a personal account held with the government guaranteed Perth Mint.”
John Welborn, Resolute’s Managing Director & CEO, with Richard Hayes, The Perth Mint’s CEO
