Unexpected Jobs Report Upends Economy
In a surprising turn of events, the US job market showed unexpected growth in September. Despite the backdrop of high-interest rates and persistent inflation, employers added a staggering 336,000 jobs. That is almost double the forecasted amount. This report not only exceeded expectations but also included upward revisions for previous months, suggesting that the job market is even hotter than initially portrayed. In fact, it marked the best month for job creation since January. This job market surge might seem like fantastic news, but it comes with a twist that has significant implications for the broader economy.1
The data directly contradicts the goal of the Federal Reserve’s blistering interest rate hikes. They rose to 5.5 % within a year. Rapidly raising rates was supposed to slow the economy and combat unrelenting inflation. The unexpected strength in job growth now leaves investors and policymakers grappling with potentially higher interest rates being in effect for longer.2
The Morgan Stanley Global Investment Office said, “The huge upside surprise in the monthly jobs report blew any ideas about a cooling labor market out of the water. Regardless of whether another hike occurs, investors are facing the prospect of a hawkish Fed and high interest rates for the foreseeable future.”4
The odds of a November rate hike have almost doubled according to the CME Group’s FedWatch tool, which tracks trading. They say there could be another hike in 2023. Rates are predicted to then be held high throughout 2024.
JPMorgan Chase CEO Jamie Dimon expressed his fear that rates could go up to 7%. Government bond yields are rising to multi-year highs in expectation of rates going up. And loans pinned to those yields, including mortgages and credit card rates — are set to go up, too.5
Job Report Impact on the Economy
Stocks plummeted on the news. The Dow Jones fell 191 points. The CBOE Volatility Index approached a five-month high. Analysts are suggesting the current market selloff is far from exhausted.
The job report caused Treasury yields to jump. It is worth remembering that the yield curve is still inverted. An inverted yield curve reflects investor’s long-term fears for the economy. It is known a reliable predictor of recession.
The rise in Treasury yields has wreaked havoc throughout markets over the past month. It has been bruising stocks, supercharging the dollar, and pushing mortgage rates to their highest levels in more than two decades.
The bond market has been hit particularly bad. Treasury yields move inversely to bond prices. When bond yields rise, the prices of existing bonds fall. This can result in capital losses for investors who hold these bonds, particularly those with long maturities. The situation is endangering an already fragile banking system.
In addition, rising yields can lead to higher borrowing costs for individuals, businesses, and the government. This can slow down economic activity and make it more expensive to service debt.
Sharp rises in bond yields can also cause more stock market volatility. Investors may shift their money from stocks to bonds in search of higher yields, causing equity prices to decline. Also, higher mortgage rates, often influenced by rising bond yields, can reduce affordability for homebuyers and potentially slow down the housing market.
Jobs Report Impact on You
A current snapshot of the economy is not a pretty picture for most Americans. It looks like a failing financial report card6:
• Inflation is relentless. It’s not at its peak above last year’s 9%, but still above 3%.
• Prices for gas, food, and housing continue to skyrocket.
• Mortgage rates are above 7%, a 23-year high.
• Paychecks aren’t keeping pace with inflation.
• Credit card rates are over 20% on average, a dangerous two decade high.
What the Future Holds
The Federal Reserve has adopted what they call data-based decision making when it comes to further rate hikes. Instead of pursuing an overall strategy, they will react to whatever the most recent numbers tell them. The most recent job numbers are most likely going to result in higher interest rates for longer.
The problem is that they are operating on a schedule. And that timetable may not be able to account for other looming problems. Factors such as the resumption of student loan payments, federal budget fights, UAW car manufacturing strikes, and dwindling consumer saving. These may contract the economy on their own. Without their consideration, the Fed could wind up dogpiling punishing high interest rates on top of already suffering Americans.
In this topsy-turvy economy, good news is bad news. And the pessimistic-sounding axiom “bad news is good news for gold” holds true. Physical gold can protect the value of a portfolio from volatility, higher interest rates, inflation, and recession. A Gold IRA can offer tax advantages in addition to the wealth protecting benefits of physical precious metals. Brace for the impact of the Fed’s next move and contact American Hartford Gold today at 800-462-0071.