More Proof The Fed Ignores The Data
As Jay Powell has made abundantly clear in numerous public appearances and press conferences, he views America’s allegedly “tight” labor markets as the pivotal front line in his battle against consumer price inflation.
Additionally, as Powell’s prepared statement for the press conference following the announcement illustrates, he is completely misreading the jobs situation.
The labor market remains very tight. Over the first three months of the year, job gains averaged 345,000 jobs per month. The unemployment rate remained very low in March, at 3.5 percent.
Yet today’s unemployment claims data is but the latest data point in a set that demonstrates the labor market has been cooling for almost a year.
In the week ending May 6, the advance figure for seasonally adjusted initial claims was 264,000, an increase of 22,000 from the previous week's unrevised level of 242,000. This is the highest level for initial claims since October 30, 2021 when it was 264,000. The 4-week moving average was 245,250, an increase of 6,000 from the previous week's unrevised average of 239,250. This is the highest level for this average since November 20, 2021 when it was 249,250.
The advance seasonally adjusted insured unemployment rate was 1.2 percent for the week ending April 29, unchanged from the previous week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending April 29 was 1,813,000, an increase of 12,000 from the previous week's revised level. The previous week's level was revised down by 4,000 from 1,805,000 to 1,801,000. The 4-week moving average was 1,829,500, an increase of 2,250 from the previous week's revised average. The previous week's average was revised down by 1,000 from 1,828,250 to 1,827,250.
These increases come at the tail end of a series of increases which began soon after the Fed began pushing up the federal funds rate.
When we overlay the federal funds rate hikes against the initial jobless claims data, we can see the pace of jobless reversed very clearly at the end of September 2022 and began trending up, in close conjunction with a federal funds hike to 3%.
With the continuing claims data, we see a similar trend reversal, also in conjunction with the hike of the federal funds to 3%.
Both initial claims and continuing claims inflected around the week ending September 17, 2023, in the same week when the federal funds rate went to 3%.
If the goal for the interest rate hikes is to cool off labor markets, the rise in initial and continuing unemployment claims suggests that goal was achieeved in the fall of 2023.
Separately, the Producer Price Index data, also released today, reminds us yet again that the Federal Reserve’s rate hikes have had nothing to do with reductions in consumer price inflation.
The black dotted line on the above chart is when the first federal funds hike was initiated. It occurred in March, 2022, the same month that the producer price index peaked and just 3 months before headline consumer price inflation peaked.
One month prior, in February, core consumer price inflation reached its plateau, where it has remained.
In other words, inflation was peaking even before the federal funds rate hikes had a chance to take macroeconomic effect. Yet despite this pre-existing downward trend, core consumer price inflation has remained woefully stubborn during the rate hike ear, neither decreasing appreciably nor increasing appreciably.
The Federal Reserve on the one hand can’t recognize unmistakable cooling trends in employment, and on the other hand, can’t recognize when inflation truly began cooling and disinflation began to take hold.
Yet, even in the face of such appalling ignorance, the Fed has continued to push rate hikes as the “cure” for consumer price inflation.
“Experts” are problem enough, but when the “experts” cannot read simple charts and graphs to gut-check the assumptions being made, there is no chance for a good outcome. What the Fed does not know will eventually hurt all of us.
Be warned and be afraid. The times still grow more interesting.