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Crossroads

On July 5th, the department of Labour will publish the unemployment rate for the month of June. After the encouraging inflation report last month, all eyes are pointing to the second Fed mandate to see if the Fed will follow the steps of the ECB and cut official rates or will continue to hold rates at 5.25%. As the chart below shows, US unemployment is currently at an important juncture: over the last 75 years, every time the unemployment rate crossed its 36 month average upwards, it has spiked almost vertically. This comes at a time where the BLS is being questioned for doctoring the unemployment numbers to make them look better than they actually are. If indeed the jobs picture is worse than we currently see, the Fed will be in the uncomfortable position of having to act in a presidential year, too close to Election Day, with inflation higher than target, and unemployment worse than anticipated. Pressure keeps mounting.


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