Fed Falls for its Own Inflation Fakery

The Great Recession

The S&P 500 failed a breakthrough on Thursday and tucked its head back below its 4200 ceiling again, where it has remained rangebound for weeks. Job news on the economic front that many analysts toasted as great could not lift sentiment out of the doldrums on Thursday, nor could it stop Netflix from making its first death cross in more than two years. Falling below its 200-day moving average is generally regarded as a sign that a stock is trending down for the longer term.

The market’s response to Thursday’s employment news further reveals the degree to which inflation concerns are tugging downward on market sentiment. While the good news about jobs gave a jolt of lift to stocks in the opening hours, as it was digested, investors appeared to be figuring out that good news would be bad news for stock prices because a rebounding job market could add additional inflationary pressures as companies are being pressed to pay higher wages to attract people back to work. Inflationary pressures, in turn, will pressure the Fed to turn down its massive money-pumping engines, which have pressured a major flow of new cash into stocks and bonds at a rate of $120-billion a month for a year now.

The present employment situation is great for labor, thanks to the government stimulus checks, because the ease with which people can remain out of the workforce empowers them to press corporations to boost pay in order to attract them back in. For the past decade, labor has lost out to profits being shared solely with shareholders. Labor has seen little real gain in wages while shareholders have seen massive gains due to the almost direct flow of Fed money into stocks and bonds as the cheap debt has financed stock buybacks in record amounts for years. Finally, some of those profits are now being pressured toward labor as many in the labor force hold back until jobs pay more than they are making on unemployment.

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