Was Friday's April jobs number good enough to get the Federal Reserve to start normalizing interest rates soon?
Based on the reaction of both the stock and bond markets, the answer is no. The increase was likely way too small to convince the data-paralyzed Fed that the economy has recovered enough to let it stand on its own feet. The sharp downward revision in the already lousy March figure only added to the case.
The jobs report – nonfarm payrolls rose 223,000 in April – was a lot better than March's report – which isn't saying a whole lot – but certainly not strong enough to worry investors that the Fed might see a reason to raise interest rates sooner than most now expect, which is either late this year or early 2016.
According to the Wall Street Journal, the odds of a July increase implied by Fed Fund futures fell to 7% after the jobs number was released from 10% before it. Odds of a move in September fell to 22% from 27%, while October odds fell to 38% from 45%. Odds of a rate rise in December dropped to 55% from 62%.
The huge downward revision in the March figure to 85,000 jobs – making it the smallest gain in nearly three years, down from the originally reported figure of 126,000 – made the March and April figures largely a wash. That put the two-month average at just 154,000, hardly a reason to get excited about or to think the Fed will start thinking about a rate rise in the next few months.
Moreover, the poor performance of the U.S. economy dating back to the fourth quarter of last year hardly portends strong hiring in the months ahead. Are companies going to go out and add workers following 0.2% growth in Q1? I don't think so.
Rest assured, the Fed will wait for more data before moving to raise rates. So that could be months from now.
Meanwhile, Congressional heat on the Fed is starting to get hotter.
According to a Bloomberg report, lawmakers are now rolling out "concrete legislative proposals" to make the Fed more accountable. Sen. Richard Shelby, R-Alabama, chairman of the Senate Banking Committee, is working on a bill that would require that the president of the New York Fed – the one closest to Wall Street – be confirmed by the Senate and create a commission to make recommendations on how to restructure the Fed.
Additionally, President Obama's favorite senator, Elizabeth Warren, D-MA, and David Vitter, R-LA, are working on their own measure that would curb the Fed's emergency lending powers. That bill, due this week, could be offered as an amendment to Shelby's bill.
These efforts follow earlier proposals to reign in the central bank. Back on January 28 Sen. Rand Paul, R-KY, reintroduced his "Audit the Fed" bill that would subject the Fed's monetary policy discussions and decisions to audits by the Government Accountability Office. Paul announced his candidacy for the Republican presidential nomination on April 7.
These efforts take on a more serious meaning now that we've been treated to the Ben Bernanke Cash-In Tour.
Over the past several months the former Fed chair has joined a growing list of major Wall Street firms as an adviser or in some other role.
First there was the blog on the website of the Brookings Institution, where Bernanke serves as a distinguished fellow. Then came the advisory roles at PIMCO, formerly the world's biggest bond investor, and Citadel, one of the world's largest hedge funds. Both gigs are reportedly worth more than $1 million a year. Then there are the speaking fees, which bring in a reported $200,000 a pop. A book deal is probably not far off.
He makes Bill Clinton look like a pauper.
I certainly don't begrudge Mr. Bernanke's ability and desire to make a living, no matter how lucrative. He follows a long line of former presidents and other senior government officials quickly cashing in on their experience and contacts in the private sector. But it does look a bit unseemly.
That's why we need current Fed members to get off their high horses proclaiming their independence and, therefore, that they're above scrutiny.
It never ceases to amaze me that a large number – if not an actual majority – of people in this, one of the world's oldest and largest democracies, are perfectly content to have nine members of the Supreme Court essentially make the laws of the land that the rest of us are supposed to follow. Now we seem to be equally happy to have a dozen members of the Fed determine the economic future of 320 million people.
If that's the case, the least we should expect is some public oversight, and soon.
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George Yacik
INO.com Contributor - Fed & Interest Rates
Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
interest rates may head higher over the next few years, but right now we are still in, what I call, the obamacare recession. give it a couple months, then something may look slightly better.
obamacare may not effect everyone directly. but, a 10% hit to the budget of 10% of americans is the same as a 1% hit to everyone.
Although the Fed may have the jobs data to "sit tight", the weakness in the Utility Average the past 4 months, says to me that the Fed has lost control of interest rates. Long term interest rates are headed higher with, or without, the support of the Fed. Also, as hedge funds and banks try to unwind their leveraged long bond positions, the question will be: who will be the buyers?