The financial blog Zero Hedge claims that the Federal Reserve has absurdly shifted to a hawkish stance this week, just under three months after dramatically lowering interest rates by 50 basis points to "combat economic recession." Standard Chartered's Forex strategist Steve Englander said, "The real question is, if you are going to be so hawkish, why lower rates at all?"

Indeed, but a better question is why the Federal Reserve underwent such a drastic change from being aggressively dovish to being belligerently hawkish in just three months (we know Trump won the election).

However, the best question is: did the Federal Reserve make another disastrous policy decision and mistakenly choose to "turn hawkish" again?

Zero Hedge states that the answer is indeed affirmative, "this is not because the corrupt and conspiratorial Biden administration provided any unreliable statistics; we now know that every incremental data point is a deceitful lie (not only did we correctly predict the near-record downward adjustment of 0.818 million jobs, but we also recently explained the 'Biden's web of lies: the Philadelphia Fed found that all jobs 'created' in the second quarter were fake'), but because objective third-party labor market tracking institutions confirmed that the labor market has just experienced an implosion."

Goldman Sachs economist Manuel Abecasis wrote in a recent report that the job finding rate for unemployed workers—the proportion of workers who become unemployed in one month and find a job in the following month—has fallen by 7% since September, reaching 21%, which is the largest two-month drop on record (the only exception being the economic collapse in 2020 when the entire world came to a halt) and is also the lowest proportion since 2014!

Goldman Sachs' team of economists noted that they have consistently emphasized the importance of the job finding rate "in explaining the cyclical fluctuations in the unemployment rate, especially at the onset of a recession." They added, "From a surface perspective, the sharp decline in the job finding rate may raise concerns that the unemployment rate is about to see a more significant increase."

To explain this recession signal, even Goldman Sachs, which was extremely optimistic about the outlook until recently, identified three factors leading to the drop in the job finding rate:

First, the job-seeking rate of foreign-born workers has significantly declined, dropping by about 10% over the past few months, accounting for approximately 2% of the overall decrease in the job-seeking rate. This means that there are no more illegal immigrants flooding into the labor market. Goldman Sachs believes that the uncertainty surrounding immigration policies under the soon-to-be-inaugurated Trump administration may make employers less willing to hire these workers.

Second, the job-seeking rate of trade and Transportation workers has decreased by about 10%, also accounting for 2% of the total decrease in the job-seeking rate. This decline partially reflects the seasonal distortion of the Thanksgiving holiday in November being later than usual, leading to a reduction of 0.028 million jobs in the employment report.

Third, the number of unemployed workers aged 65 and over who retired in November has increased, resulting in a disproportionately large decline in the job-seeking rate for this age group, dropping about 15% from the September level and 13% below the average level of 2019. This accounts for another 1% of the overall decrease in the job-seeking rate. The reduction in the number of job seekers aged 65 and over has led to a decrease in the number of potential employees available for hire in November.

Importantly, Goldman Sachs' own research has found that the transition from unemployment to leaving the labor market has not historically driven cyclical fluctuations in the unemployment rate.

Although these three factors can explain about 5% of the decline in the job-seeking rate since September, the reality is that if combined with the latest data from the Philadelphia Fed (which shows that job creation for the second quarter was negative), the previously reported 1.1% job growth will be significantly revised downward. This means that more than 0.4 million jobs will be revised to negative for the second quarter.

Goldman Sachs has to acknowledge that the continuous decline in the job-seeking rate over the past year is in line with a significantly loosening labor market in 2024 that is 'not yet stable', and it should also be added that the signs of a labor market recession are either already here or imminent.

Editor/Rocky