Fed Gets Reprieve With “Goldilocks” Jobs Number
The goldilocks zone is a term that has cross-mutated to the common vernacular from the advanced fields of astrobiology and advanced astronomy. It refers to a planet so positioned like Earth where it is neither so hot that water will evaporate or so cold that it will freeze, thus giving rise to the conditions necessary for carbon-based life as we know it. This term was used across Wall Street today to describe the jobs number that came in softer than expected but strong enough to not arouse concern. This is why the number is considered to be in the goldilocks zone. It enabled Cleveland Fed President Loretta Mester to call the month’s jobs gain “solid”, but to reiterate that the “Bottom line is I would like to see further progress than where we are right now.”
The number came in at 559,000 nonfarm payroll jobs, which is just north of a hundred thousand short of the 671,000 estimate. Thus, some pressure was alleviated after the very surprising inflation numbers that came in much higher than expected. This gives the Fed cover to continue accommodative policy for the immediate future.
Jay Powell said on Friday that, although the Fed should and indeed must monitor risks related to financial institutions as a result of climate change, the agency needs to maintain its political independence. He specifically said, “we are not, and we do not seek to be, climate policy makers.” He went on to elaborate the Fed does not want to fill any gaps in climate policy that should be appropriately handled by elected officials. We will provide detail in the coming weeks on just how the Fed is integrating climate change. This primarily occurs adjacent to the Federal Reserve’s often overlooked supervisory function of the nation’s largest financial institutions and banks.
This seemingly innocuous statement is nonetheless likely to anger Republicans that have already expressed concern and apprehension of their central bank’s decision to join the Network for Greening the Financial System. The Fed has a delicate line to walk between Republican lawmakers quite averse to Fed involvement in this issue and their international counterparts like Christine Largarde who recently said that Central Bankers who do not use their mandate to respond to “our planet burning” are failing in their duties.
On Wednesday, the Federal Reserve said it plans to sell its extensive portfolio of corporate bonds that it acquired during the crescendo of pandemic-induce market panic. This completes the transition away form emergency support and marks another step on the path to the end of pandemic-Central Banking. Firstly, the Fed will begin reducing the amount of bond ETFs that It holds and next it will begin selling the single-name bonds it holds. The chief of efforts to promote financial stability will obviously attempt this operation in an orderly fashion that will not adversely affect markets or prices. So far, the response in debt markets has been tame.
The Fed also released the Beige Book this week, which is a good insight on macroeconomic conditions and the attitudes of producers and businesses. Economic growth continued at a moderate pace. Increasing vaccination is helping the economy. However, businesses are citing rising input costs and inflationary pressures from wages and raw materials. Finding workers continues to be problematic in some industries.
Asset purchases continued at a pace of $40 billion a month for MBS and $80 billion a month for Treasuries. The benchmark yield on the 10 year is at an even tamer 1.557% than last week.
