To understand the likelihood of the US Federal Reserve's tapering timetable being accelerated, I believe we have to understand how quickly the US employment market improves relative to expectations. That's because the Fed's unstated bias in its dual mandate is toward employment over inflation given the talk of a K-shaped recovery and income and wealth inequality. So, let's look at how jobless claims tracked at similar points in previous post 1982 jobs cycles.
The real issue is whether the continuing claims are actually reflecting what is going on in the real economy. There are divergences with the BLS data and that does leave open the possibility of fraud, both from employees AND employers. Here's an alternative hypothesis: It is possible that furloughed employees are still collecting checks from the gov't. Many employers who are trying to draw these workers back to the work place, also pay them "under the table", so that they can continue to collect checks, while the employer doesn't register the returning workers as employed again. That would be one reason why we see this significant divergence. (Biden himself when justifying his infrastructure program, seemed to be working off the assumption of around 18-20m unemployed, based on the continuing claims data). BUT if that hypothesis is true, then it would suggest that the labour market is MUCH tighter than many think. Add to this the "long Covid" phenomenon. What if some workers can't return because they are still suffering after-effects from the virus? Combine these 2 factors and you might have a super tight labour market.
If this hypothesis is true, then we should start seeing this reflected in the wage data. This is already happening to a degree. In the leisure industries, the last data point we had was April 11th and we saw a 5.2% yoy gain in wages. And that's from March data. Over the last couple of months, I suspect these gains might prove to be more significant. In which case, more gov't stimulus really puts oil on a potential inflationary fire. Just a thought...to be continued.
What are your thoughts on how Fed. tapering affect rates?
I would think tapering would cause the MBS market to comeback to reality (making rates go lower) as I see home prices staying inflated, home buyers deciding to rent instead of buying coupled with Fed. rate staying unchanged?
Or am I foolish to think the tapering will bring rates lower.
The real issue is whether the continuing claims are actually reflecting what is going on in the real economy. There are divergences with the BLS data and that does leave open the possibility of fraud, both from employees AND employers. Here's an alternative hypothesis: It is possible that furloughed employees are still collecting checks from the gov't. Many employers who are trying to draw these workers back to the work place, also pay them "under the table", so that they can continue to collect checks, while the employer doesn't register the returning workers as employed again. That would be one reason why we see this significant divergence. (Biden himself when justifying his infrastructure program, seemed to be working off the assumption of around 18-20m unemployed, based on the continuing claims data). BUT if that hypothesis is true, then it would suggest that the labour market is MUCH tighter than many think. Add to this the "long Covid" phenomenon. What if some workers can't return because they are still suffering after-effects from the virus? Combine these 2 factors and you might have a super tight labour market.
If this hypothesis is true, then we should start seeing this reflected in the wage data. This is already happening to a degree. In the leisure industries, the last data point we had was April 11th and we saw a 5.2% yoy gain in wages. And that's from March data. Over the last couple of months, I suspect these gains might prove to be more significant. In which case, more gov't stimulus really puts oil on a potential inflationary fire. Just a thought...to be continued.
awesome conclusion Mr. Harris.
What are your thoughts on how Fed. tapering affect rates?
I would think tapering would cause the MBS market to comeback to reality (making rates go lower) as I see home prices staying inflated, home buyers deciding to rent instead of buying coupled with Fed. rate staying unchanged?
Or am I foolish to think the tapering will bring rates lower.