At times, an image is better than 1,000 words ….

Source: US Bureau of Labor Statistics.

For the first time in 18 years, the number of job openings (JOLTS – blue line) in the U.S.A. has surpassed the number of unemployed people in the labour force (orange line)

The Federal Reserve is delivering on its objectives. The economy is in full employment and inflation, as measured by the annual change in the price index for personal consumption expenditures (PCE), is at target. Financial conditions remain accommodative and the Federal Reserve believe that the Federal Funds Rate still remains 0.75-1% below the neutral rate. In an environment where financial imbalances are building, it is hard to imagine that some volatility in financial markets will derail the gradual rate hiking process.

The reaction function of the Central banks has now changed. Deflation is not a concern and emergency policies are no longer required.

Sovereigns and corporates that have not dealt with their structural challenges while liquidity was ample will have to pay the price. Buying the higher yielding asset (not only applicable to Fixed Income assets) in the hope that Central Banks will bail you out will no longer be a suitable approach.

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