Thursday, June 9, 2016

Continuing unemployment claims do NOT support holding off rate hikes


US Continuing Unemployment Claims 2005 to Present and YoY
Data Source:  US Department of Labor
 Unemployment weekly 2015-4-9.xlsx

The most recent BLS jobs report for May 2016 implied that US employment is totally in the tank providing cover for the Fed to continue to hold off on interest rate hikes.  However, continuing unemployment claims along with the BLS own nonadjusted data does not indicate the jobs market is as bad as the May 38k gain implies.

I find it very suspicious that conditions now justify a funds rate below 1% helping to hold the US 10 year treasury below 10% while in the 2007 timeframe the economy was clearly grinding to a halt but the funds rate was in the 3-5% range helping to hold the 10 year treasury in the 5-6% range.  It is pretty clear that low treasury rates and low interest on margin debt are keeping investors in very expensive risky stock assets at this point since treasuries do not offer an attractive return.  

How is it that with continuing claims at a lower absolute level than around 2007 with a larger working aged population that these low rates can be justified?  Moral of this story is they can't.  I expect we'll see a major spike in rates post election.


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