The Fed Blew It! More QE on the Horizon?

lance_HSThe Fed still claims that they are close to a rate hike. But Treasury bond prices are still telling a different story. So does economic data.

The jobs report Friday morning missed, and missed big time. For one, the number of jobs created in September was much lower than expected, missing by more than 30%. But for the prior two months to be revised sharply lower as well? The Fed’s been left without a leg to stand on!

And if you thought it couldn’t get worse, it did. Labor participation fell to a rate not seen since 1977.

But remember, the Fed is most concerned with wage growth, and… oops, there was none of that this past month either. And for good measure, the average work week also fell.

So if we ignore the unemployment rate that remained at 5.1%, which is meaningless by itself, the overall employment situation is not improving. It’s getting a lot worse.

As I mentioned months ago, the Fed had an opportunity to raise rates earlier in the year. Back then, employment and the economy looked to have gained a little strength.

Now, it’s too late. Their window of opportunity has come and gone, as has their credibility. A rate hike by the end of the year is now very unlikely.

Volatility continues in the Treasury bond market. As you can see below, rates have overall been falling since the Fed decided to leave policy unchanged. Investors clearly don’t believe in the Fed.

30 Year US Treasury Bond 30 Days

Since the Fed didn’t raise rates when they had their chance earlier this year, they won’t have a rate cut in their tool box if the going gets even tougher. If our economy declines further or deflation actually takes hold, they may go back to what didn’t work before…

You guessed it. More quantitative easing (QE).

On Monday morning, investors seemed to think QE4 was on the table since stocks moved sharply higher while bond prices moved lower. Bad news is now good news.

That’s the wrong mindset. It’s way too early to speculate buying stocks on possible central bank support. But that’s exactly what seems to be happening for now.

Rather, investors should be selling stocks. Weak employment, no wage growth, low and possible negative price growth – and not to mention the prospect for poor corporate earnings – does not a strong market make.

Lance Gaitan

Lance Gaitan
Editor, Dent Digest Trader

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Categories: Interest Rates

About Author

Lance Gaitan graduated from Franklin University in Columbus, OH with a degree in Finance. After graduating and working as an auditor for an insurance administrator as a number of years, he attained his securities license. He then went to work as a broker for a small firm and during the mid-1990’s Lance managed the futures trading desk for Piper Jaffray, a large regional brokerage firm based in Minneapolis. After migrating to Florida in early 2000, Lance founded a futures trading firm, GSV Futures, specializing in retail commodity trading strategies. Lance sold that business in 2006 and joined Harry Dent, Jr. and Rodney Johnson at Dent Research shortly thereafter.