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Friday, February 6, 2015

Employment Report - United States Is Decoupling

Bond Economics - US Employment Ratio

The January Employment Situation Report was strong, in line with the baseline Fed forecast of a June rate hike. So far, the United States economy has shrugged off the weakness seen in other countries. On past form, the Fed will hike rates, and ignore those overseas jitters (assuming that there is no serious deterioration in the data; mediocre data will not be enough to stop rate hikes). That said, every time the Fed has ignored overseas developments, a financial crisis has forced them to reverse course. The question is how long it will take for that financial crisis to materialise.

Update: I do not know how significant the Eurogroup statement that came out this afternoon is; it could just be posturing. If not, the answer to the question above may be "sooner than I thought",


  1. This comment has been removed by the author.

  2. Hi Brian,

    Did you have a chance to read my last comment on whether the Fed is on the cusp of raising rates:

    Admittedly, it's long but I think the rise in the USD, driven in large part by foreign demand for U.S. bonds, buys the Fed time before it considers raising rates.

    Also, the labor market has a lot of hidden slack and all the hoopla on wage inflation is way overdone (several states raised the minimum wage).

    More importantly, if the Fed ignores international developments, it will be making a monumental mistake.

    If you have time, please discuss the topics in a new blog post.



    1. Hello,

      I saw your article. I have been tied up, so I have not had a chance to write anything.

      I am concerned and confused with what is happening in Europe. Foreign developments may overshadow US domestic data if things go badly. My instinct is that Europe can muddle through without disasters, but there is some seriously bad statecraft going on right now.


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