We have seen very soft economic data coming out of the US as of late. Jobs have been weak. Housing data, consumer spending and industrial production have all been weak. Everyone is blaming the weather and the Federal Reserve Board (FED) says the economy remains on track and will, in all likelihood, continue to end its quantitative easing program (QE).
When the Fed reverses policy, things happen, they tend to panic and lose any semblance of an orderly reversal. And so this pattern begins again.
As of right now, the Fed has reduced QE by $20 billion a month since beginning to taper back at its December meeting. They are, for now reducing the size of QE by $10 billion a month increments with the goal of ending the program by end of year.
Unemployment is Near the Target
The unemployment rate is now at 6.6 percent. The Fed target is 6.5 percent to start raising rates. The Fed has made a promise not to raise rates till the unemployment rate is well below 6.5 percent and maybe even closer to six percent. Depending on who you ask, we are either 0.6 percent from full employment or 0.1 percent.
The labor force has shrunken. There are still many people temporarily employed or have given up looking for full time work. So is the US really at full employment?
Can you really blame the Fed here or the politicians in Congress?
It is the fiscal and regulatory officials that are elected into power who design and implement taxes, spending and regulations. They seem not to be interested in encouraging policies that want to make businesses expand, create jobs or invest capital. They seem to want to focus on bipartisan fighting and arguing instead of doing their actual jobs. Thanks to this, the economy will continue to fall short of goals. The middle class will continue to have difficulties. It does not matter how much money the Fed injects into the economy or prints.
Investors know this to be true and are no longer just blaming the weather for everything. We have seen the equity markets decline, the Dollar take a hit and yet we have recovered all of these losses. This means they are not blaming the Fed for everything and sooner or later, elected officials could feel the wrath of their voters. However, the Fed is out of touch. Full employment? Not even close to the reality.
Later this week, we get durable goods orders and new home sales. We also get the revision of the Q4 GDP. We are already preparing ourselves for that to be revised lower to 2.5 percent.