The Fed Game

By Scott Poore, AIF, AWMA, APMA
Chief Investment Officer, Eudaimonia Group

Markets declined last week on new worries about a rate hike later this month.  Though last week was a holiday-shortened week, there was plenty of action in the markets.  The minutes from the last Fed meeting were released which showed overwhelming support for last month’s “pause.”  In addition, the minutes suggested that the Committee is monitoring employment and price stability.  Well, the Jobs Report last week revealed that the unemployment rate dipped slightly to 3.6%, but has held steady between 3.8% and 3.4% for the past year and a half (well below the historical average).  In addition, Average Hourly Earnings were steady in June (+4.4%). 

Prices have already stabilized as major commodities and energy have declined year-over-year.  Food items such as chicken and pork (major July 4th picnic favorites) were down 9% and 6%, respectively this year versus last year.  And yet, the consumer continues spending.  July 4th spending was up more than 2% this year.  Total automobile sales were up almost 4% last month.  In fact, the leading economic growth index released by ECRI, shows the highest growth rate in more than a year.  With earnings and jobs relatively stable and prices coming down, it would appear that is a little bit of a tailwind for consumers.  The question now becomes, why would the Fed need to raise rates again later this month?  The answer to that is less clear.

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