Monetary policy

Soft patch in April?

The U.S. Bureau of Labor Statistics reported that the nonfarm payroll employment rose by (only) 115,000 in April, and the unemployment rate was little changed at 8.1 percent. The “disappoint” data sent major stock index down, reversing a seven months rally. In concert to Greece and French election results, global equity has been sold off in recent six trading sessions.

So did the U.S. economy hit another soft patch? I think it’s probably not. If we look at major economy indexes, U. S. economy has been very resilient and the recovery is slowly but surely. I think the “soft patch” in the job data might be a delay effect from the downgrade of U. S. credit rating and the climax of the EU financial crisis late last year.

Defying a soft patch does not mean I would change my prediction of further monetary easing. Housing is still pretty weak, and the pace has mismatched the recovery of the rest economy. I do not expect new fiscal policies to be created by the U. S. government, given the political sensitivity in the election year. So it is up to the Fed to invent something to stimulate the housing market. Giving up help means the EU crisis will take the center stage and that will undo all good efforts the Fed has made. My prediction discussion of stimulus policy will be on table as early as next Fed meeting in June. And more likely some Fed members will start to signal the possibility amid the stock market muddying toward bearish.

With commodity price down (crude oil $96), Fed does not have much inflation concern. U. S. dollar has strengthened. Japan is printing money to create inflation; China interest rate or RRR reduction is imminent. Just a perfect time for “QE”.

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