A HAWKISH FED TESTIMONY

Equities slumped after FRB Chair Powell suggested curbing bond purchases faster than expected.  It is now forecasted the Fed would double the pace of acceleration, to $30 billion a month starting in January, wrapping up QE by mid-March.

Powell also officially retired the word “transitory” as inflation has become imbedded in the economy.  Few market participants have experienced an inflationary environment and how rising costs could wreak havoc on valuations.

The Fed is also “perplexed” that there has not been a big increase in the labor supply.

Speaking of labor, the WSJ writes “the pandemic has unleashed a historic burst in entrepreneurship and self-employment.  Hundreds of thousands of American are striking out on their own as consultants, retailers and small business owners.”

The Journal further writes the number of unincorporated self-employed works has risen by 500,000 since the start of the pandemic to a total of 9.44 million, the highest total since the financial crisis year of 2008.

The total amounts to an increase of 6% in the self employed while the overall US employment total remains nearly 3% lower than before the pandemic.

Entrepreneurs applied for federal tax id numbers to register 4.54 million new businesses from January through October this year, up 56% from the same period of 2019, Census Bureau data show.

This is the largest number records that date back to 2004.  Two thirds were for businesses that are not expected to hire employees as per the WSJ.

I think this data is significant.  It points to the can-do culture of the US and can help explain as to why the LPR is bouncing around post pandemic lows.

Yesterday I commented about the 4 years spanning 1996-2000, the four years where growth averaged 4.4% and was a primary reason for budget surpluses.

According to BLS data, approximately 90% of the jobs created in that era, job growth that was instrumental to driving growth, occurred in small businesses, defined as companies employing less than 400 people.

Is this again occurring?  Several weeks ago, FRB Chair was perplexed as to why national income was still rising not declining as forecasted, the result of the September expiry of enhanced unemployment benefits that paid 52% of recipients more money not to work rather than work.

It is dangerous to write anything political, however economics and politics are congruent subjects, defined as one can not discuss one without the other.  Against this backdrop, should one suggest that our monetary authorities have lost touch with the typical American, relying instead on theory and comments from mega sized corporate America whose aims are congruent to that of big government?

Change is the only certainty.  It is the velocity of change that is frightening.

What will happen today?

Last night the foreign markets were up.  London was up 1.50%, Paris up 1.66% and Frankfurt up 1.67%. China was up 0.36%, Japan up 0.41% and Hang Seng up 0.78%.

The Dow should open nominally higher on a constant reassessment of the omicron variant. The 10-year is off 11/32 to yield 1.49%.

 

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