You can rule out an interest rate cut by the Federal Reserve at the end of this month after the much stronger than expected jobs performance of the US economy in June.
According to most economists, the US economy sagged a little in the three months to March with the clincher being the weak jobs report for May with just 72,000 new jobs reported.
That saw growing speculation of a change in the Fed’s policy stance, which was duly noted at the end of the May meeting with a clear easing bias established.
Comments from senior Fed members reinforced that belief and markets ran up when some economists started talking about three rate cuts and a half a percent whack at the Fed’s end of July meeting.
Gold jumped, the US dollar weakened (it returned to a two week high on Friday), US 10 year bond yields fell under 2% for the first time in more than a year and Wall Street ran higher with the Dow, S&P 500 and Nasdaq all hitting new highs on Wednesday, before the July 4 holiday.
Fast forward a month and it is now a very different story after the Labor Department said the US economy added 224,000 jobs last month – the most in five months and well above the 160,000 – 170,000 range forecast from the market.
That is not a sign of a weak labour market that would normally cause the Fed cut interest rates, let alone by 0.50%!
So Wall Street fell, gold fell and US 10 year bond yields jumped to 2.037%, up more than 8 points.
US economists now say the level of uncertainty ahead of the Fed meeting on July 30-31 meeting will see tensions rise between nervy, greedy investors and the central bank, so watch for another temper tantrum and possible sell-off.
In its semi-annual report to Congress, the Fed on Friday repeated its pledge to “act as appropriate” to sustain the economic expansion, with possible rate cuts in coming months, but they highlighted a strengthening jobs market and again described recent weak inflation as due to “transitory influences.”
Fed Chairman Jerome Powell is out in public in Washington this week with testimony before Congress on Wednesday and Thursday,.
He will be asked about interest rate cuts no doubt and about the now numerous attempts by President Trump and his administration to pressure the Fed to cut rates (Trump again tried that with a tweet on Friday) and The President’s continuing moves to appoint unsuitable people to fill to vacancies at the central bank.
Powell has repeatedly said the Fed makes decisions independently from markets and the White House, but failing to deliver a cut could cause a stock and short-term bond selloff – in other words, another temper tantrum from greedy investors.