Wall Street: Where Good News Is Bad, Again


Wall Street: Where Good News Is Bad, Again


by David Reavill

You may recall a couple of years ago when a rally met every swoon in the market. It was called the Fed Put. The idea was that every time the stock market faltered, the Federal Reserve would step in to provide stimulus. It began with Alan Greenspan and has been used by each Chair of the Fed since.

Today’s Fed trigger appears to be the labor market. The current Fed Chair, Jerome Powell, has gone out of his way to point out that the Fed’s mandate is to promote full employment and stable prices. This Twin Mandate means that as long as employment remains strong, the Fed can be very aggressive in its inflation fight. Raise those interest rates higher; just don’t hurt employment.

On Friday, we got two excellent reports on the labor sector. First, the economy added 263K new jobs, far above the most optimistic analyst’s expectations. And second, the unemployment rate dropped to just 3.5%, reflecting over 200K new workers joining the labor force.

Excellent news, right?

I’m afraid not.

This red-hot labor market means that the Fed is free to keep hiking interest rates. Something the Street was hoping would not happen. So, look out for the Fed’s next meeting on November 2nd. The odds are that we will see an even more considerable rate boost then, perhaps even a full percent.

And we can now see why this “good” employment news caused the Dow to fall 600 points on the day.

That’s life on Wall Street, where good news is again bad.

So let’s grab a cup of coffee and reflect on the week that just passed.

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18 days ago

To keep the US Economy Healthy, Interest Rates should NEVER go below 5% and should always be at least 4% above inflation. For Decades, the FED has been using FREE MONEY (zero interest) to stimulate growth; with little to show for it. As a result, America stopped being a Savings Nation; basically no one saved money and everyone owed money. Almost no one had a Rainy Day Fund. Right now inflation is draining what little Middle Class savings there is dry and now driving up Debt. When the savings well goes dry, the Economy implodes into a debt spiral. The FED appears to have finally realized that reality! The FED has to drive the cost of money high enough to actually “Depress” the economy to save it. It’s Economic Tough Love!