Jobs Reports supports an aggressive Fed rate hike to lower inflation, but other factors need to be addressed to address the bigger global picture

Today, the Bureau of Labor Statistics published good news. In March, 431,000 Americans became employed, and the unemployment rate was within 0.1% of 3.5% to 3.6%. The economists surveyed predicted that more than 500,000 jobs would be created, but this has little to do with today’s report, which shows that the job market in the United States is alive and well. The strength of today’s report shows that the workforce in America now stands at just 1.6 million jobs, or 1% of pre-pandemic levels. It should be noted that increasing employment is a by-product of the hard labor market, which has been forced to offer higher wages to attract new workers.

This solid report will give the Federal Reserve the data it needs to continue raising rates, likely at a much more aggressive pace. However, the Federal Reserve will have a virtually impossible soft landing mission as they reduce current inflation to an acceptable target rate of 2%.

Today’s report has led to a sharp decline in gold prices: the most active futures contract in June 2022 fell by $ 25.50 or 1.31% and is currently fixed at $ 1928.50. The vast majority of today’s fall was a direct result of sales pressure, with 0.2% of today’s decline of 1.31% is the result of the strength of the dollar.

Inflation has been at its highest level since 1981. This extremely high level is the result of a series of events that took place one after another. Together, these events and factors will lead to an inflation rate of 9.01% in the first quarter of 2022, according to the Federal Reserve Bank of Cleveland. Their research shows that the CPI index in March will rise to 8.41% over the same period last year.

Extremely high inflation, which has become a by-product of the global pandemic and subsequent recession, has now increased due to Russia’s invasion of Ukraine. This military action will greatly affect Europe more than the United States because of its dependence on imports of agricultural products from both countries, as well as oil, natural gas and gasoline from Russia.

Since the beginning of hostilities, Ukraine has long been considered a granary that provides European countries with wheat and other agricultural products. Ukraine’s production has essentially stopped. While Russia continues to extract oil and its derivatives for export, the United States and the European Union have largely boycotted Russian exports.

In a more normal crisis with inflation, the measures needed to reduce inflation could be implemented through extremely aggressive rate increases. However, the complex causes that led to the 40-year high of inflation alone cannot solve this problem. Without resolving the military conflict between Russia and Ukraine, inflationary pressures in Europe will continue to rise. This brings us to the main dilemma. Russia retains an iron hand in terms of its demands to withdraw its troops and barbaric hostilities, which are also focused on civilian targets. Their demands are simple, at first they demand capitulation from Ukraine. Despite the fact that Russia is negotiating, the fact that they continue to bomb cities while they are negotiating is a clear indication that negotiations are just tactics, look like they want a peaceful settlement, if in fact they used the negotiation process to replenish their troops. Real negotiations require a ceasefire while negotiations are ongoing, which is not the case. Ukraine also has a firm and simple demand that Russia withdraw its troops and stop killing civilians and destroying their cities.

Geopolitical tensions combined with a clear spiral of inflation have exacerbated decisions that have been applicable in the past. Without resolving the conflict between Russia and Ukraine, inflation in Europe will continue to rise. The current crisis of geopolitical tensions in Europe and the level of inflation in the United States, which is approaching 9.1%, requires impeccable performance by central banks to create a soft landing and end the Russian occupation of Ukraine. Simply put, you cannot solve the crisis completely without settling both high inflation and the withdrawal of Russian troops from Ukraine.

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I wish you, as always, good trade,

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