{"id":183805,"date":"2025-06-14T13:05:16","date_gmt":"2025-06-14T13:05:16","guid":{"rendered":"https:\/\/www.europesays.com\/uk\/183805\/"},"modified":"2025-06-14T13:05:16","modified_gmt":"2025-06-14T13:05:16","slug":"the-employment-situation-is-worsening-enough-to-override-the-tariff-induced-inflation-worry","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/uk\/183805\/","title":{"rendered":"The employment situation is worsening enough to override the tariff-induced inflation worry"},"content":{"rendered":"

Outlook<\/p>\n

Today we get the preliminary University of Michigan’s consumer sentiment index. As we know, these surveys are showing less angst over inflation and jobs while polls by the likes of Ipsos are showing a huge majority of respondents are very, very worried about both (and the Dems far more worried than the Republicans).<\/p>\n

On the geopolitical front, Trump offended Israel when he visited the Middle East and failed to even wave at Bibi on his flights. Now the world expects Trump to intervene and drag Isreal away from a Plan to destroy Iranian nuclear capability, but Trump has no power over Israel and Israel is likely loathe to give him any credit for any retreat.<\/p>\n

For the dollar, the charts indicate safe haven status may have flown the coop. Normally an outbreak of war-like activity drives the dollar up. This time we are getting a slow crawl while the Swiss franc is the undisputed champion.<\/p>\n

We find it interesting that the Israeli attacks happened in the US evening but the currencies were rallying long before then\u2014in fact, all day. This may mean the WSJ article predicting the attack, which we saw around 9 am, was taken very seriously indeed.<\/p>\n

On another front, doubts are popping up all over the place about what the Fed will say next week after the June meeting . We are not the only loony who wonders if the Fed might hint, hint that July is a real possibility for a cut and Sept is nearly certain.<\/p>\n

In other words, the employment situation is worsening enough to override the tariff-induced inflation worry that has yet to materialize.<\/p>\n

The important Greg Ip at the WSJ has a front page story today with the headline \u201cThe Case for Rate Cuts Is Growing\/\/Tariff inflation has been muted, and cracks are appearing in the labor market.<\/strong><\/b><\/p>\n

IP points out the Fed doesn\u2019t need to act next week but should acknowledge risks are shifting (and can pat itself on the back for beating Covid-induced inflation).<\/p>\n

\u201cEconomists think tariff effects will become more apparent in coming months. But that alone isn\u2019t reason enough for the Fed to stay on hold. Tariffs represent a one-time boost to the price level, which means after a year inflation should revert to its pre-tariff trend. The question is whether tariffs push the trend higher.\u201d<\/p>\n

Meanwhile, services and shelter are pulling inflation down quite separately from trade-related goods, which are not showing inflation so far for reasons we don\u2019t understand. And the labor market is \u201cshowing cracks.\u201d The nice May number will likely be revised. See the chart version of unemployment Ip chooses.<\/p>\n

\u201c\u2026. tariffs are already draining money from the economy. And if they do push inflation higher in coming months, they will also cut into purchasing power, aggravating risks to\u00a0jobs.Though\u00a0not as out of whack as last September,\u00a0rates are still roughly 0.5 to 1.5 percentage points above what Fed officials consider \u2018neutral,\u2019<\/strong><\/b>\u00a0the level that keeps growth, inflation and unemployment stable. That restrictive stance make sense so long as inflation is all the Fed has to worry about. It no longer is.\u201d<\/p>\n

Bloomberg has another economist who notes pandemic induced inflation has indeed been beaten. Not all inflation, just the incident that scared us all so much in June 2022 when it hit 9%.<\/p>\n

WolfStreet\u00a0has a dandy indicator that is coincident and not lagging. It\u2019s the unemployed continuing to receive benefits after the initial first week claim. Wolf writes \u201cWhile the level itself remains relatively low, and quite a bit below the recession marker (black line), the trend is going in the wrong direction at a now significant pace.<\/p>\n

\u201cThis trend has occurred before, and then it reversed before reaching anything near critical mass, and the economy kept plugging along just fine.<\/p>\n

\u201cBut if this trend persists, if it does not reverse, but just keeps heading higher toward critical mass, the indicator is going to ring a recession warning bell.\u201d This is what the Fed<\/a> fears\u2014systemic job losses.<\/p>\n

\u201cThe prior three business-cycle recessions \u2013 not counting the Pandemic which was a lockdown, not a business cycle recession \u2013 came after Insured Unemployment had surged to:<\/p>\n