Jobs Report supports aggressive Fed, but other issues need to be resolved in order to solve the big global dilemma
The Bureau of Labor Statistics released some welcomed news today. 431,000 Americans became gainfully employed in March, and the jobless rate was within 0.1% of 3.5%, coming in at 3.6%. Economists polled had forecasted that over 500,000 jobs would be added. However, that has little relevance with today’s report indicating that the labor market in the United States is vibrant and strong. The strength of today’s report shows that America’s workforce is now only 1.6 million jobs, or 1% off of the levels that existed before the pandemic. It must be noted that higher employment is a byproduct of a tight labor market that has had to offer higher wages to attract new workers.
This solid report will give the Federal Reserve the necessary data to continue to raise rates, most likely at a much more aggressive rate. However, the Federal Reserve will have a near-impossible mission to have a soft landing as they reduce the current inflation rate to their target rate of 2%.
Today’s report helped to cause a strong decline in gold pricing, with the most active June 2022 futures contract declining by $25.50 or 1.31% and is currently fixed at $1928.50. The vast majority of today’s decline was a direct result of selling pressure, with 0.2% of the 1.31% decline resulting from dollar strength.
Inflation has been at its highest level since 1981. This exceedingly high level is the result of a series of events that occurred one after the other. Together these events and factors will result in an inflation level of 9.01% for the first quarter of 2022, according to the Federal Reserve Bank of Cleveland. Their studies indicate that the CPI index will surge to 8.41% year-over-year in March.
The exceedingly high level of inflation, which was the byproduct of the global pandemic and following recession, has now been magnified due to Russia’s invasion of Ukraine. This military action will greatly affect Europe more than the United States due to their dependence on importing agriculture and energy products from both countries.
Ukraine has long been considered to be the breadbasket of Europe, supplying European countries with wheat and other agricultural products. Ukraine’s production has, in essence, come to a hard stop. While Russia still produces oil and its derivatives for exports, the United States, along with the European Union, has, for the most part, boycotted Russian exports.
In a more normal scenario, the measures needed to reduce inflation could be accomplished with extremely aggressive rate hikes.
Without a resolution to the military conflict between Russia and Ukraine inflationary pressures in Europe will continue to grow. This leads us to the primary dilemma. Russia is maintaining an iron fist in terms of its demands to withdraw its troops and its barbaric military actions which have also focused on civilian targets. Although Russia has been negotiating, the fact that they continue to bomb cities as they negotiate is a clear indication that talks of peace are simply a tactic, to have the appearance that they wish to have a diplomatic resolution. Normally negotiations require a cease-fire truce while talks are taking place and that is not the case. Ukraine also has a steadfast and simple demand which is that Russia withdraws its troops and stops the murdering of their people and destruction of their cities.
The geopolitical tension caused by this ongoing conflict coupled with the spiraling levels of inflation has exacerbated solutions that would’ve been applicable in the past. Without a resolution to the conflict between Russia and Ukraine, inflation will continue to grow in Europe. with inflation levels in the United States approaching 9.1%, requires a perfect execution by central banks to create a soft landing. Simply put, you cannot resolve the crisis in its totality without resolving both the high level of inflation and the withdrawal of Russia’s military from Ukraine
Wishing you as always good trading,
Gary S. Wagner - Executive Producer