Fed won’t raise rates as the unemployment rate falls because the unemployment rate is basically nonsense.

yellen_janet_040512_8x10Unemployment (the official unemployment number) keeps going down bit by bit because people are dropping out of the workforce not because people are newly employed.

But the Fed said it would start normalizing interest rates once the unemployment rate was around 6.5%. We’re not there yet, but since the rate is declining because the labor pool is shrinking and not because people are getting jobs even a modest increase in interest rates will spook everybody and likely would send the economy into recession. (From our already low point.)

Why? Because the unemployment rate is actually much higher than 6.5%.

The official unemployment number is only useful as a propaganda tool at this point, and barely that. The Fed itself now appears to have acknowledged that the number isn’t something it can move on. And it shouldn’t because it’s fake.

I would love to know the unemployment number the FOMC actually bases their decisions on. 10%? Higher?

(From Real Clear Markets)

In reality, the Fed will keep manufacturing excuses as to why rates can’t be raised. Whether it’s a cold winter or a hot summer, a geopolitical crisis, or an unexpected sell off in stocks or real estate, the Fed will always find a convenient excuse to postpone tightening. That’s because it has built an economy completely dependent on zero % interest rates. Even the smallest rate shock could be enough to push us into recession. The Fed knows that, and it is hoping to keep the ugly truth hidden.

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