Unemployme​nt vs. Inflation

 is like Chuck Norris vs. A Velocirapt​or…

Jobs, jobs, jobs.  Job creation is the big concern for the United States right now.  With it, a chain reac­tion fixes everything.  People start spending more, home prices start to rise again as demand increases, wealth returns to the American public, cherubs dance naked in the streets whilst strumming harps.  Without it, things stay right about where they’re at in Sucktown.
 
So, everyone is excited to hear our national unemployment rate dropped another 0.4% to 9.0%, right?  And we only created 36,000 jobs to do it!  MAN are we efficient. 
 
Yeah?  YEAH?  Really?!?
 
No, honestly this isn’t great.  The decrease in the unemployment rate is due to many would-be job seekers either giving up entirely or just giving up temporarily because of the massive winter storm that hit the north (Yes Florida.  That did happen.  Wasn’t just a massive coincidence of Northerners com­plaining on Facebook.).  We need to create about 125,000 jobs per month to even keep pace with the growth of the labor force.  And from 2007-2008 we lost in the neighborhood of 8,750,000 jobs.
 
Job creation FAIL.
 
But that hasn’t stopped everyone (me included) from freaking out about inflation.  Prices on food and commodities have started creeping upward.  Now, depending on what political agenda you’re pushing, you can either call that an expansion of emerging markets and a general increase in worldwide demand ooooooooooorrrrrrrr you can call it the inevitable and impending inflation from too much money sloshing around in the economy.
 
As is my tendency, I fall somewhere in the middle.
 
Fact of the matter is Big Ben Bernanke is going to stay the course of low benchmark rates and accom­modative asset purchase programs.  Imagine, if you would, a giant spring: my awesome metaphor for rate movement.  The Fed buying treasuries acts as pressure from above, pushing the spring down and rates lower.  But the perception of inflation acts as a pressure from below.  So, no matter how hard the Fed pushes down, once the inflation genie is out of the bottle they just won’t have the muscle to keep rates down.  Because genies are super-strong.  Did you SEE Aladdin?  That blue dude was jacked.
 
Ironically enough, Federal Reserve governor Kevin Warsh recently announced his resignation.  He is a well-known inflation-hawk (meaning he’s more concerned for subduing inflation than creating jobs).  Kinda unsettling in the wake of this big debate.
 
We’ve already seen the results bleed into mortgage rates.  As measured by Freddie Mac’s average 30 year fixed rate, it has risen from 4.30% in November to 4.76% in January.  And the trend has contin­ued into February so far.  On the flip-side of the coin, existing home sales rocketed forward which is a bright spot.

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