- The U.S. dollar started out this morning on the defensive
- Government released CPI numbers generated a sharp reversal across the board
- Gold sold off, but closed slightly down against the dollar
- April CPI up just .1% on the month; year over year prices dropped -.2%
- Lowest CPI since October 2009
- Core CPI (excludes food & energy) rose .3%
- Biggest monthly jump since March 2006
- News sent dollar up on anticipation that rate hike will be more likely
- Inflation benchmark is just as real as the 6-1/2% unemployment goal
- Traders still haven’t figured out that if we ever approach the goal, it will be moved
- Biggest factor within the .3% rise in the Core was +.7% in health care costs
- Biggest increase since January 2007 – prior to Obamacare
- Rising costs will slow consumer spending, weakening the economy and undermining employment
- Yellen in a press conference today did not actually project a rate hike
- It’s all about extend and pretend; actually postponing the rate hike will buy the Fed some time before launching QE4
- Increased inflation as the economy cools down means stagflation
- The media is spinning increased inflation as good news
- Bad economic news released yesterday:
- Unemployment numbers came out higher
- Fewer hires mean fewer fires
- Chicago Fed National Activities Index came in at -.15
- Three month moving average down to -.23
- MAY PMI expected to rise to 54.6 unexpectedly declined to 53.8 – lowest lever in 16 months
- Bloomberg Consumer Comfort Index continued to slide from 43.5 to 42.4
- May Philadelphia Fed looked for a bounce back to 8; missed expectations with 6.7
- Missed expectations 5 out of the last 6 months
- Existing Home Sales expected improvement over March; dropped to 5.04 million
- Kansas City Federal Reserve Manufacturing Index missed expectations at -13; dropping for 5 consecutive months
- Economic data as bad as 2009 and inflation is getting worse
- Janet Yellen acknowledged underlying issues with unemployment number, mentioned discouraged and part-time workers
- Labor Force Participation Rate is not improving
- Low-skilled jobs in jeopardy with minimum wage hikes
- $15/hr fever will further hurts employment and erodes the tax base
- Higher minimum wage will transform workforce because employers will hire better workers for the higher wages
- Movement will substitute technology for labor costs
- Minimum wage hikes will undermine the economic recovery that Janet Yellen pretends is existing
- So she can continue to pretend that the Fed’s monetary policy is working
- And she can pretend that they can actually raise interest rates
- In the unlikely event Yellen tests a rate hike, they will have to acknowledge that they were wrong
- The Fed can always blame the data for deciding not to raise rates and therefore save face
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