Unemployment, the Fed and the Market
Nov 9, 2009
Posted by Jody Eisenman | Filed under Uncategorized
Last week, we saw the unemployment rate jump to 10.2%, the highest level since 1983. In addition, if we include the workers who are now part timers but are looking to be full time, and those who have given up looking, the rate becomes an incredible 17.5%.(http://www.nytimes.com/2009/11/07/business/economy/07econ.html?_r=1&th&emc=th)
In addition, the Federal Reserve Open Market Committee (the ones that decide where this country is heading economically) announced this week that although economic activity is picking up, sluggish income growth, tight credit and lower housing prices continue to drag on the overall economy. As such, they anticipate keeping Fed Funds where they are now (0-.25%) for an extended period. What that means in plain English is that low interest rates are here to stay for the foreseeable future.
Despite all this, the stock managed to rise an additional 3% last week, confirming what I have been writing about for the past few weeks. In a way, this is paradoxical. On the one hand, as rates remain low, it is cheaper for businesses to borrow in order to expand, and stocks become more attractive relative to the low interest rates offered on bonds. On the other hand, if we take this to an extreme, the more people out of work will obviously hurt the overall economy in terms of both productivity and buying power. It would seem to me that while the wealthy are doing okay, the job market is really hurting the lower and middle classes. If we want to continue having a vibrant middle class, this must change, and it is up to President Obama and the current administration to effect these changes. I will try to write more about this tomorrow, including the paradox of where Obama’s support comes from.
