Casey Wagner

<div id="highlights-block_62c87a4ac0da4" class="highlights">
 <ul>
 <li>Wages were up 5.1% in June, potentially adding to price pressures</li>
 <li>The data shows that the US economy is not yet in recession territory, but threat of downturn remains</li>
 </ul>
 
</div>



In a better-than-expected turn, the US economy added 372,000 jobs in June, according to the monthly jobs <a href="https://www.bls.gov/news.release/empsit.nr0.htm%5C" target="_blank" rel="noreferrer noopener">report</a> from the Bureau of Labor Statistics released Friday. Despite the strong hiring numbers, the unemployment rate, at 3.6%, was unchanged from May. 



The data show the US economy is not yet in a recession, during which the unemployment rate averages 6.2%. The average unemployment rate in the month preceding a recession is 4.7%.&nbsp;



While the jobs numbers seem to be cause for optimism, the economy is not necessarily in the clear, analysts say.&nbsp;



“These job reports and their potential effects on the market…tend to be delayed in terms of economic data,” Chris Kline, chief operating officer at Bitcoin IRA, said. “For example, several large crypto companies have recently announced large job-number cuts, but those numbers most likely weren&#8217;t reflected in today&#8217;s report. This will have an effect on the market as a whole in the future.”



Wages grew 5.1% in the twelve months ending in June, according to the report, still running higher than the Federal Reserve would like. Recent rapid wage growth makes slowing inflation a challenge.&nbsp;



“The promise of wages moving up is a great thing,” Fed Chair <a href="https://cms.blockworks.co/tag/jerome-powell/" target="_blank" rel="noreferrer noopener">Jerome Powell</a> said in May following the Fed’s policy meeting. “But the increases are running at levels that are well above what would be consistent with our 2% inflation goal over time.”



A <a href="https://cms.blockworks.co/fed-officials-expect-slower-growth-imminent-rate-rises/" target="_blank" rel="noreferrer noopener">75 basis point interest rate hike</a> in July is still expected. 



“The Fed funds futures market is pricing in a 75 basis point hike as a near 100% probability, and the Fed is doing nothing to convince them otherwise,” Jack Farley, macro analyst and host of Blockworks’ <a href="https://cms.blockworks.co/podcasts/forwardguidance/" target="_blank" rel="noreferrer noopener">Forward Guidance</a> podcast, said. “Atlanta Fed Chair Raphael Bostic noted that today&#8217;s labor report ‘reaffirms that the labor market is strong,’ and stated that he is &#8216;fully in support of a  75 basis point hike.’” 



In the initial jobless claims report released Thursday, there was little in the data that “reflects any cooling,” Nicholas Colas, co-founder of Datatrek Research, said. The four-week average of continuing claims, at 1,335,000 this week, tells a similar story, he added.&nbsp;



“The 2017 – 2019 average was 1.8 million, well above current levels,” Colas said. “Fed Chair Powell wants to see labor market conditions return to their pre-pandemic norms, but the data here says we still have a long way to go on that front.”



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Federal Reserve

Strong Jobs Data and Rising Wages Complicate Fed’s Inflation Plans

<div id="highlights-block_620e8e6d2c982" class="highlights">
 <ul>
 <li>Unemployment numbers continue to improve, suggesting that a March rate hike is looking more likely</li>
 <li>Bitcoin and other risk assets largely have hikes priced in already, analysts say</li>
 </ul>
 
</div>



US jobless claims rose last week after three straight weeks of declines. Unemployment still remains at a historic low, however, a key metric that may mean hawkish action from the Federal Reserve is to come.



Initial jobless claims rose to a seasonally adjusted 248,000 last week, up from 225,000 the prior week, according to <a href="https://www.dol.gov/ui/data.pdf" target="_blank" rel="noreferrer noopener">data</a> from the Department of Labor. Continuing claims, which provide insight into the number of citizens receiving state unemployment benefits, declined to 1.59 million, down from 1.62 million the week prior.



The largely positive report comes after Federal Reserve Chair Jerome Powell indicated that maximum employment is a key goal that must be met before the Fed will raise interest rates or taper asset purchases.



“In their discussion of current economic conditions, participants noted that indicators of economic activity and employment had continued to strengthen,” <a href="https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20220126.pdf" target="_blank" rel="noreferrer noopener">minutes</a> from the Fed’s January meeting read. 



While the employment situation may be looking up, inflation continues to rise at the fastest rate in <a href="https://cms.blockworks.co/analysts-weigh-likelihood-of-march-rate-hikes-as-cpi-disappoints-again/" target="_blank" rel="noreferrer noopener">40 years</a>, leading analysts to believe rate hikes are coming in March.



“​​The central bank will kick off its tightening cycle next month and a number of consecutive hikes will likely follow,” Craig Erlam, senior market analyst at OANDA, wrote in a note Thursday. 



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“Whether they&#8217;ll kick things off with a 50 basis point hike isn&#8217;t yet clear and will depend on the data in the coming weeks, but there doesn&#8217;t appear to be consensus for it yet, despite markets pricing in a fair chance of it happening.”</blockquote>



Fed fund futures show a <a href="https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html" target="_blank" rel="noreferrer noopener">69.2% probability</a> that the Fed will raise rates between 25 to 50 basis points at its March 15-16 meeting, which is 19 trading days away.



The prospect of higher rates has put a damper on risk assets, including bitcoin and other cryptocurrencies, in recent months. Bitcoin fell about 2% Thursday an hour after the release of the jobs report, but analysts remain optimistic.



“[Bitcoin] has shown real resilience in recent weeks, but is struggling to generate the momentum needed to take the next step,” Erlam said. “The uncertainty in the markets probably isn&#8217;t helping, although it hasn&#8217;t held it back recently, a break above here could be a very bullish development for bitcoin.”



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Bitcoin

Jobless Data Makes March Rate Hike More Likely

Ben Strack

<div id="highlights-block_614b9ecef0d1c" class="highlights">
 <ul>
 <li>If recovery remains on track, a gradual tapering process that concludes around the middle of next year is likely to be appropriate, Powell says</li>
 <li>The Fed still evaluating whether to issue a CBDC amid extensive private innovation, which the Fed chair noted is taking place outside the regulatory perimeter</li>
 </ul>
 
</div>



While the Federal Open Market Committee (FOMC) kept interest rates near zero and maintained its asset purchases, Chair Jerome Powell said considerations around tapering “could come as soon as the next meeting.”



The Committee indicated last December that it would continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage‑backed securities by at least $40 billion per month until substantial further progress has been made toward its maximum employment and price stability goals.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“For inflation, we appear to have achieved more than substantial further progress, so that part of the test is achieved in my view and in the view of many others,” Powell said Wednesday during a press conference following the FOMC meeting. “The question is really on the maximum employment test.”</blockquote>



Job gains averaged 750,000 per month over the past three months but slowed in August in sectors such as leisure and hospitality due to rising Covid cases



Powell admitted that the anticipated filling of job vacancies in September as children went back to school and unemployment benefits expiring has not happened “in force” due to the Delta variant.&nbsp;&nbsp;&nbsp;



The FOMC generally views that so long as the recovery remains on track, a gradual tapering process that concludes around the middle of next year is likely to be appropriate, Powell added.&nbsp;



“The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal in the timing of interest rate liftoff, for which we have articulated a different and substantially more stringent test,” the Fed chair noted.



The committee continues to expect to maintain a target range for the federal funds rate between 0% and 0.25% until there is maximum employment and inflation has risen to 2% and exceeds 2% for a period of time. Half of FOMC participants forecast these will be fulfilled by the end of next year.&nbsp;



<h3 class="wp-block-heading">Ethics review, CBDC progress</h3>



Powell also addressed media reports of Fed officials who traded stocks and other investments while setting monetary policy.



Financial disclosure forms show that Federal Reserve Bank of Dallas President Robert Kaplan and Federal Reserve Bank of Boston leader Eric Rosengren actively traded in markets last year, the Wall Street Journal recently <a href="https://www.wsj.com/articles/fed-faces-calls-to-remove-officials-over-trades-they-made-while-setting-policy-11632226559" target="_blank" rel="noreferrer noopener">reported</a>.



He said the Fed has begun a review of the ethics rules around permissible financial holdings and activity by Fed officials, noting that such officials should in general not be owning the same assets that the Federal Reserve is buying.&nbsp;



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“No one at the FOMC is happy to be in this situation, to be having these questions raised. It’s something we take very, very seriously,” Powell said. “This is an important moment for the Fed, and I’m determined that we will rise to the moment and handle it in ways that will stand up over time.”</blockquote>



The Fed chair was also asked about progress on developing a central bank digital currency (CBDC). Powell noted that the Fed will soon publish a discussion paper on the subject.



“With the creation of myriad private currencies and currency-like products, we’re working proactively to evaluate whether to issue a CBDC and if so, in what form,” he said. “&#8230;I think it’s important that we get to a place where we can make an informed decision about this and do so expeditiously. I don’t think we’re behind. I think it’s more important to do this right than to do it fast.”



<hr class="wp-block-separator"/>



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CBDC

Powell: Guidance around Fed Tapering Could Come at Next Meeting

<div id="highlights-block_610d75edc1f87" class="highlights">
 <ul>
 <li>Unemployment rate down “considerably” from highs seen during Covid-19 outbreak last year, but remains higher than pre-pandemic levels</li>
 <li>Report reinforces the Fed will taper its quantitative easing in the next couple months, markets watcher says</li>
 </ul>
 
</div>



Nonfarm payroll employment rose by 943,000 in July as unemployment fell from 5.9% to 5.4%, the US Bureau of Labor Statistics reported Friday morning.



Notable job gains occurred in leisure and hospitality, in local government, education, and in professional and business services. The total number of unemployed people fell by 782,000 to 8.7 million.



“These measures are down considerably from their highs at the end of the February-April 2020 recession,” the report states. “However, they remain well above their levels prior to the coronavirus pandemic.”



Before Covid-19, in February 2020, the number of unemployed people was at 5.7 million, representing 3.5%, according to the report.



<div class="wp-block-image"><figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="1024" height="878" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/08/civilian-unemployment-ra-1-1024x878.jpeg" alt="Jobs report chart" class="wp-image-6256" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/08/civilian-unemployment-ra-1-1024x878.jpeg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/08/civilian-unemployment-ra-1-1024x878.jpeg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/08/civilian-unemployment-ra-1-1024x878.jpeg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/08/civilian-unemployment-ra-1-1024x878.jpeg?w=305 305w, https://blockworks-co.imgix.net/wp-content/uploads/2021/08/civilian-unemployment-ra-1-1024x878.jpeg?w=256 256w, https://blockworks-co.imgix.net/wp-content/uploads/2021/08/civilian-unemployment-ra-1-1024x878.jpeg?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/08/civilian-unemployment-ra-1-1024x878.jpeg?w=1400 1400w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /></figure></div>



President Joe Biden said in a press conference Friday that his administration was the first in history to add jobs in each of the first six months in office, and the only one to add 4 million jobs in that span.&nbsp;



“Economic growth is the fastest in 40 years,” he said. “Jobs are up, and unemployment is the lowest since the pandemic hit.”&nbsp;&nbsp;&nbsp;



Tom Essaye, founder and president of Sevens Report Research, said the July jobs report reinforces that the Fed will taper its quantitative easing in the next couple of months. The <a href="https://cms.blockworks.co/us-adds-850000-jobs-as-unemployment-upticks-june-jobs-report/" target="_blank" rel="noreferrer noopener">June jobs report</a> originally showed 850,000 jobs added, he noted, a figure that was later revised to nearly 1 million.&nbsp;



“You have two back-to-back months with a million job adds, which really kind of cements the fact that the Fed needs to start reducing QE,” Essaye told Blockworks. “That’s not a problem for markets at this point, because markets have been expecting it. A potential problem arises if we get a few more really good jobs reports because then that would essentially increase the risk the Fed tapers sooner than expected or tapers larger than expected.”



The market currently expects the Fed to acknowledge its potential tapering plan during the <a href="https://www.kansascityfed.org/research/jackson-hole-economic-symposium/" target="_blank" rel="noreferrer noopener">Federal Reserve Bank of Kansas City</a>’s economic policy symposium in Jackson Hole, Wyo., from Aug. 26 to Aug. 28, or at its September meeting, he added. It is expected that the quantitative easing reductions would begin in December at a rate of about $15 billion of tapering per month and end in mid-2022.



“If that gets pulled forward and we see tapering begin in November, or almost more importantly if tapering occurs more quickly … QE is going to end essentially in March or April,” Essaye said. “That could actually be quite a shock to markets and we would almost see a repeat of the 2013 taper tantrum, probably something worse.”



<h3 class="wp-block-heading">Delta threat still real</h3>



The jobs report comes after Federal Reserve Chairman Jerome Powell <a href="https://cms.blockworks.co/fed-chair-powell-economy-depends-on-covid-path/" target="_blank" rel="noreferrer noopener">said during a meeting last week</a> he expected the Covid impacts weighing on employment growth, such as ongoing fears of the virus and unemployment insurance payments, would wane in the coming months.



Powell added at the time, however, that the Fed would continue to monitor the effect of the slowing pace of Covid vaccinations and the spread of the Delta variant.&nbsp;



Daily new Covid-19 cases reached a six-month high of more than 100,000 in the US, <a href="https://www.reuters.com/world/us/us-covid-19-cases-hit-six-month-high-over-100000-reuters-tally-2021-08-05/" target="_blank" rel="noreferrer noopener">Reuters reported on Thursday</a>.&nbsp;



A total of 165 million Americans are now fully vaccinated, Biden said. As a result, the average job growth over the last three month has been 832,000, he said.&nbsp;



“Even so, my message today is not one of celebration,” the president noted Friday. “It’s one to remind us we’ve got a lot of hard work left to be done both to beat the Delta variant and to continue our advance of economic recovery.&#8221;



In July, 13.2% of employed people teleworked because of the coronavirus pandemic, down from 14.4% in the prior month, the Friday report indicated. A total of 5.2 million people reported that they had been unable to work because their employer closed or lost business due to the pandemic, down from 6.2 million in June.



<h3 class="wp-block-heading">Market impact?</h3>



In terms of the latest report’s impact on the stock market, Essaye said the job gains were good for financials, industrials and materials stocks. The technology sector, viewed by many as a defensive sector of sorts, often lags when it appears the economy could grow quickly.



The Dow Jones Industrial Average and the S&amp;P 500 had risen 0.6% and 0.8%, respectively, following the release of the jobs report Friday morning, as of Noon eastern time. Meanwhile the Nasdaq Composite Index, which has a heavy weighting in tech, had fallen by 0.5%.

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