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Interest rates dilemma

There is an interesting dynamic goign on in the employment data and in commodities behavior, which ultimately influences CPI. In the chart below, you can see the surge in illegal immigration that is being accepted in the labor force in the U.S. maintaining unemployment low and labor cost very low as well. A survey in the state of NY about job security shows that for low incomes, there is a 24% probability of losing a job. Combined with this, there is a surge in prices in Oil, gold and copper, among other commodities. We will see tomorrow if there’s any impact on CPI for March, but there is a growing concern that there might be a deterioration in the labor market, paired with supply side issues on raw materials, which will put the Fed in an uncomfortable position: there might be a need to ease rates to comply with the full employment mandate, but in order to comply with the price stability mandate there might be a need to keep rates high (or even raise them).

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Source: Goldman Sachs

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