Disappointing data on the US labor market came out last week. However, bad news for the economy could ultimately have a positive impact on the value of precious metals. This is because the US Federal Reserve is hoping that the economy will suffer even more before it abandons its policy of raising interest rates.
Fed Chairman Jerome Powell has stated bluntly that he welcomes "easing" in the labor market. In other words, he wants more Americans to become unemployed and find themselves in financial trouble in order to reduce inflationary pressures. Politicians in Washington, D.C., who are fueling inflation by expanding debt-financed spending programs, will not be deterred by higher interest rates. But central bankers believe they can siphon liquidity from the real economy, making it difficult for businesses to borrow and hire new workers.
The US Federal Reserve is looking for excuses to stop raising rates and start a new easing of monetary policy.
Powell must have been pleased when he read the labor market report last week. It showed that the official unemployment rate rose from 3.5% in July to 3.7% in August. Although the unemployment rate calculated by the Department of Labor is still low by historical standards, as it does not take into account the millions of people who are currently unemployed.
For example, it does not take into account “desperate” workers who have been unemployed for too long (such as those who dropped out of the labor force in 2020 when the pandemic hit). The report also does not take into account part-time workers and workers from contractor companies who are looking for full-time work but cannot find one. The Alternative Unemployment Rate calculated by ShadowStats' John Williams shows that 24.6% of Americans were unemployed in August.
Harder times lie ahead for job seekers, especially if the nascent recession (not yet recognized by government statisticians) deepens. Based on the latest labor market data, investors now expect the US Fed to cut its rate hike plans at its next meeting later this month. The worse things are in the economy, the more Jerome Powell and his colleagues will move towards easing monetary policy.