The Fed and Jobs

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Source, Author, 2022

Across most of the G20 inflation is surging. While American partisans attempt to divert blame by labelling this “Putin’s tax” or suggesting “supply chain problems due to pandemic”, the root cause is simple: too much money was created since the Global Financial Crisis. Inflation is strictly defined as money chasing a limited supply of goods. Surging US debt and deficits are the fundamental reason why I moved 71% of my retirement capital to gold & silver in March, 2019.

LOW UNEMPLOYMENT AND INFLATION

An odd side effect of surging inflation is low unemployment. But this makes perfect sense; although prices are high — and getting higher — capital is freely available, allowing business to expand and increase staff.

The chart below shows job openings across six sectors of the US economy for the previous five years.

Job Openings, six US sectors, source St. Louis Fed, Author, 2022

While this table summarises the percentage change for each sector over the same time period.

Five year change in Job Openings, six US sectors, percent, source St. Louis Fed, Author, 2022

THAT WAS THEN THIS IS NOW

We have seen robust growth across these sectors, but let’s look forward and try to understand how the situation might change. The chart below shows initial claims for unemployment as well as Fed Funds, aka “interest rates”.

Initial Claims, Fed Funds, source St. Louis Fed, Author, 2022

As interest rates rise capital becomes more expensive, causing companies to cut back on unprofitable business activities. This often leads to staff cuts.

JEROME POWELL WANTS HIGHER UNEMPLOYMENT

And this is exactly what The Fed wants; if Jerome Powell gets his way we’ll have several years of increasing unemployment. The job market is already showing signs of stress, beyond what I’ve documented here. So buckle up.

GOOD NEWS AND BAD NEWS

The good news is this type of unemployment is called cyclical, and can be easily be corrected later with lower interest rates (compare to structural unemployment, which is only solved by retraining). The bad news is The Fed’s intentions have been transparent and well stated; both interest rates and unemployment are going higher.

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