Arnold: The Emperor Knows He Has No Clothes
According to the Bureau of Labor Statistics (BLS), all measures of unemployment are decreasing, both seasonally adjusted and not, with the official not-seasonally-adjusted U3 rate now down to 7.7% in July from 7.8% in June and 8.6% a year ago.
But the BLS report is lagging. An alternative coincident measure provided by Gallup is indicating that unemployment is surging right now and has jumped to 8.9% from 7.9% at the end July in the past 3 weeks.
That is a huge increase that not only signals an immediate rapid deceleration in private sector economic activity, but would logically warrant more monetary stimulus, not less.
Even if the financial press is not interested in announcing this, it would again seem logical that the Fed would be aware of it.The increase in bond yields driven by expectations that the Fed is going to taper has caused mortgage rates to spike, housing purchase activity to stall and mortgage lenders to announce layoffs. A year ago, the Fed thought housing was a critical enough component to the economy as a catalyst for increasing overall growth that buying $40 billion monthly of mortgage backed securities, in order to reduce mortgage rates, was required. Although they've not addressed the issue recently they, again, must be aware that the recent rise in Treasury yields has pushed mortgage rates to their highest level in two years and is now stifling housing. The S&P 500 is up 15% since the Fed announced the purchase of those mortgages on Sept. 13, inclusive of a 3% decline in the past month as tapering expectations increased and bond yields rose. The 10-year Treasury closed that day at 1.72%. Today it's 2.91%. Less than four months ago, on May 1, it was 1.63%. Concerns about the Fed beginning the removal of the current round of quantitative easing have been festering in the market since the minutes of the Dec. 11-12 2012 meeting of the FOMC -- where they announced the additional purchase of $45 billion monthly of long-end Treasuries -- were released Jan. 3. Throughout the process of implementing QE3 and 4, with the exception of the announcement of mortgage purchases last September, the Fed has been very tepid in its support of the program.
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