BLS and Fed Subterfuge; Inflation Gauges, Fed Funds Forecast & Impact on the Markets

By Victor Sperandeo with the Curmudgeon

The BLS and the Fed are in Cahoots:

The tag team playbook of the U.S. government’s Bureau of Labor Statistics (BLS) and the Fed continues. The BLS reported on March 8^th that total non-farm payroll employment rose by 275,000 in February, which was much better than the consensus estimates of 200,000. But as usual, the BLS revised DOWN January jobs added from 353,000 to 229,000 and December from 333,000 to 290,000. That’s a total downward adjustment of -167,000 jobs!

BLS says that “monthly revisions result from additional reports received from businesses and government agencies since the last published estimates and from the recalculation of seasonal factors.”

On this recent Thoughtful Money podcast with Adam Taggart, Professor Neely Tamminga explained why the BLS job repot data is so inaccurate. A few of her data points:

· There are now way too few survey respondents – so it does not accurately reflect the economy.

· There are also all kinds of statistical adjustments that make the data far too subjective.

· And the data itself is just unreliable.

Cartoon of the Week:

Cartoon Courtesy of Hedgeye

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Evidently, the game is for the BLS to make the job numbers look better than forecast, then revise them down the following month. This chicanery has been going on for over one year now with only one exception.

The bottom line is that the Fed does not want to lower the Fed Funds rate too soon. While not provable, it appears the Fed has influenced the BLS to distort the job report numbers.

Last Wednesday, Fed Chair Jerome Powell said that the U.S. central bank would begin to lower borrowing costs in 2024, but that policymakers still needed to gain “greater confidence” that inflation was conquered before cutting rates. “Reducing our policy restraint too soon or too much could result in a reversal of progress we have seen in inflation and ultimately require even tighter policy.”

“What we’ve seen so far is an economy that is growing at a solid pace,” Mr. Powell said, even as inflation comes down sharply. “So those are the conditions we see — they’re very attractive conditions — and we’re trying to use our policies to keep that growth going, and to keep that labor market strong, while also achieving further progress on inflation.”

U.S. Inflation Gauges and Fed Funds Rate Forecast:

The Fed’s preferred inflation measure is the Personal Consumption Expenditure (PCE) index, which increased 2.4% on an annual basis in January - well below its nearly 7% peak. The PCE rose by 2.8% after stripping out volatile food and fuel prices for a clearer reading of the inflation trend. The Consumer Price Index (CPI) reached a higher peak in 2022 and at 3.1% YoY, remains slightly higher than the PCE.

Both inflation gauges are above the Fed’s annual inflation target of 2%. However, many analysts believe the Fed will cut rates before that 2% target is reached.

The current Fed Funds rate range is 5.25% to 5.5%. The CME FedWatch Tool reveals a 57.4% probability of a 25 bps Fed Funds rate cut (Fed Funds at 5.0% to 5.25%) at the June 12th FOMC meeting and a 44.1% chance of a total 50 bps cut (Fed Funds at 4.75% to 5.0%) at the July 30th FOMC meeting.

Victor - Impact on the Markets:

Chairman Powell teases about lowering rates later by saying, “We are almost there” or “just a little more confidence is needed.” With $6 trillion in money market funds, the Fed is concerned that lower rates would cause a stampede into financial markets way before the November elections.

If the Fed cuts rates too early, that would be similar to the easing in 1998 when the central bank fueled the Internet Bubble. It took a lot of rate hikes to undo the damage back then, with real yields eventually reaching 4%.

It seems the Fed wants to time its rate cuts to occur just before the election. However, when the rate cut finally comes the equity market will sell off as it is fully discounted. Bonds, however, will be a buy.

Bank of America strategists estimated that the U.S. government is adding $1 trillion in debt every 100 days, which is around $3.6 trillion annually. Michael Hartnett, the chief strategist at Bank of America, wrote in a note to clients that the U.S. national debt is rising by $1 trillion every 100 days. Hartnett added that "debt debasement" trades have resulted in Gold at $2,178/oz and Bitcoin at $69,287 (prices as of Sunday afternoon, March 10, 2024) – both are at all-time highs.

Here’s a one year chart of Bitcoin, which is +48,477.00 or +239.9% in the past year:

Chart courtesy of Coindesk

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Victor’s Conclusions:

The Bank Term Funding Program (BTFP) ends this Monday, March 11th, but that really has no meaning. The banks that received money from that program can keep it till rates are lower to pay it back. Meanwhile, if banks need money they can go to the Fed’s Discount Window and borrow it the old fashioned way.

The estimated U.S. federal government spending is $6.5 trillion this year or $750,000,000 a day! That is the BIG PRIZE for the winner of the 2024 election- legal unlimited counterfeit money created to buy votes.

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Be well, success, good luck and till next time………………

The Curmudgeon
ajwdct@gmail.com

Follow the Curmudgeon on Twitter @ajwdct247

Curmudgeon is a retired investment professional.  He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996.  He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.

Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies, and government policies.  Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.

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