Introduction

The Federal Reserve, Unemployment & Politics (Fed-Up)

The Federal Reserve, Unemployment & Politics (Fed-Up)

CNNMoney coined the phrase “QE-Indefinitely”. Sad but true. The Federal Reserve will continue buying bonds at a rate of $85 billion per month as it has been doing since September 2012. There is still no end in sight.  In fact, the statement released after the Fed’s Open Market Committee (FOMC) Meeting on Wednesday didn’t change much at all from the September statement.

While the Federal Reserve still believes these asset purchases are helping to strengthen the economy, it called out the Federal Government for “restraining economic growth”. Rightly so. Not only has reckless spending turned into a perennial problem, the government shutdown has resulted in a new slump in consumer confidence. That’s exactly the opposite of what this country needs.

In fact, in Alan Greenspan’s new book: The Map and the Territory, he posits that fear is at least three times a stronger mover of financial markets than euphoria. Love him or hate him, we have been witness to the effects, rational or not, of both euphoric and fearful consumers, and his assessment does sound about right.

The FOMC has told us what it’s looking for before it raises the Fed Funds rate from the zero to 0.25% it has been stuck at since 2008. That’s not a secret. It wants: Unemployment at 6.5% or lower and 1-2 year Inflation projections no greater than 2.5%. The FOMC has also stated that there will probably be a considerable amount of time between A) when it begins tapering its bond buying and B) when the conditions will warrant a raise in the Fed Funds rate.

Everyone, including Bernanke, thought that the bond-purchase tapering, would begin this year. There is one more FOMC meeting scheduled for this year so he still has an opportunity to begin the tapering off process (i.e. slow the rate at which the Fed is buying bonds) but it is looking more and more likely that that task will be left to his successor, which has now turned into another point of contention.

BauerFinancial is supportive of the President’s nomination of Janet Yellen to be the next Federal Reserve Chairman  and by all accounts she has broad support on the Hill. That doesn’t make her a shoo-in, though. Some in Congress (headed by Senator Lindsay Graham R-SC) are warning they will stall any nominees the President selects, including Yellen, for something totally unrelated to the economy. (Benghazi to be exact, but we won’t get into that.)

We will, however, get into unemployment. By definition, the unemployment rate now stands at 7.2% which would be an improvement if not for the fact that so many people have stopped searching for work. Right or wrong, the definition used for the unemployment rate excludes anyone who is no longer searching for a job, regardless of the reason. That definition has not changed so, by definition, the unemployment rate is going down.

However, the part that most people are unaware of is: According to the Bureau of Labor Statistics, at 63.2%, the percentage of Americans that currently have a job or are searching for a job is at its lowest level since 1978!

That’s terrible news but… that’s not the number that the Fed is looking at. For purposes of the FOMC, the unemployment rate is 7.2% and falling. That’s the number they are looking at to get to 6.5% or lower and that’s when we will hopefully get some upward movement in the Fed Funds rate which will translate to higher CD rates.

We need someone steering the ship and all Congress does is make it take on more water. How can they not see that  their methods are counter-productive?