Back in early April, we wrote about President Trump’s attempts to sway the independence of the Federal Reserve Open Market Committee, FOMC, by promoting two candidates to the vacant Board of Governors positions who were both calling for immediate rate cuts.
Herman Cain fell away early after some senators made it known they would not back the appointment noting claims of his politicised approach to monetary policy and past allegations of sexual misconduct. Yesterday President Trump announced that he would not be appointing economic commentator Stephen Moore to the Fed’s Board. We bet there was a huge sigh of relief from the other board members.
According to commentators, this was due to ‘controversial public remarks and some tax issues’. Moore by all accounts wanted to change the Fed's inflation policy to have it linked to commodity prices in US dollar terms so at the moment the Fed should be easing. However, when the oil price collapsed in the period 2014-2016 and the dollar price of commodities fell by almost 50% he was calling for Fed tightening. So a very flexible kind of process which seems more in line with President Trump's tweets than economic soundness. Another huge sigh….
And now onto our independent Non-Farm Payroll analysis.
NFP for April came in at +263k, stronger on the headline than expectations of 190k, with a two month revision of a further 16k jobs added. Manufacturing only added 4k against 10k expected in April so a little disappointing for that sector. The good news for us bond bulls came with the inflation indicators, Average Hourly Earnings were up just 0.2% against some calls of 0.4% taking the year on year down to 3.2% slightly better than most were looking for. The unemployment rate also fell to 3.6% as the participation rate dropped two 10th’s to 62.8%.
From the Fed’s point of view this justifies their current pause in tightening as inflation appears to be trending down slowly, and is certainly not running away to the upside. The talk recently has been about strong employment with limited wage gains and this report appears to be along those lines. Bonds are flat with the 10-year UST pricing little changed, indeed the curve is broadly priced the same as at the London opening this morning.
On another subject Peter Mayhew, ‘Chewbacca’ died yesterday. ‘May the force be with him, RIP’.