Why the Fed is being held hostage to Friday's jobs number: trader

By Alan Valdes, director of Floor operations at Silverbear

Well, as usual, there’s nothing concrete as to when we may get a rate hike. Fed Chair Janet Yellen did tell us that the economy was strengthening. And anyone watching Yahoo Finance could tell you that vice chair Stanley Fischer said Yellen’s comments were consistent with a September hike. Most economists still put that at a 33% chance after Yellen spoke on Friday. My guess is that we’ll get one hike in December. But you have to ask yourself, “What’s the rush?”

We got a mixed bag of numbers from the government yesterday. Consumer spending rose 0.3% but was down from the previous month of a 0.5% rise. The PCE price index rose 0.1% and is sitting at 1.6% for the year, slowly inching its way up to the Fed’s magical 2.0%. Those are numbers the Fed likes to see. Now, for the numbers that keep the Fed in check: Savings grew to $794 billion, up from $776 billion in June.

Yes, we like to see Americans save. But with an economy that relies on consumer spending—70% of economic activity is from the consumer—it’s OK to loosen up and spend a little. Don’t get into debt, but have a good time. You cannot take it with you!

Low volume, low volatility

For the 35th straight session, the S&P (^GSPC) closed within 1% of the previous day’s high or lows, the longest stretch of no real movement in recent times. Perhaps the most troubling number for the Fed is the GDP, which has had its weakest recovery since the 1940s. GDP is at 1.1%. In all my years on the Street, I have never seen the Fed raise rates with such a weak GDP.

But, at the end of the day, it always comes down to the jobs number. Yes, Yellen can throw us those tidbits of how they are thinking, and the other governors can chime in with some words of wit. But they are all held hostage to the government’s jobs numbers on Friday. Anything strong (250,000-300,000) and you won’t need anyone from the Fed telling us they are going to raise in September. The number will say it all: below 250,000, and it’s back to a December-only hike.

Keep an eye on the labor participation rate, which is hovering just below 63%. The Fed keeps a close eye on this number. This is the “real” unemployment number. If you add the 94 million people who have dropped out of the work force because they cannot find a job and have just given up, the unemployment rate jumps up to around 10%. So, again, I ask, “What’s the rush?”