Tag Archives: Federal Reserve

the Employment Situation, September 2016

October 7, 2016 By in employment, Employment Situation report, Uncategorized Tags: , , , , , Leave a comment

At 8:30 edt this morning, the Bureau of Labor Statistics released  monthly Employment Situation report for September.

The ES estimates the US economy created +156,000 new positions last month.  While enough to absorb the average number of people leaving school and entering the job market for the first time, the figure is below the average of +192,000 jobs created over the past three months.  Revisions to the prior two months’ estimates were also negative, subtracting a total of -7,000 from prior tallies.

For what it’s worth (not much, in my opinion), labor economists had been predicting the figure would come in at +172,000.

It’s important to remember, though, that the unemployment figures are the result of subtracting the number of job gainers from the number of job leavers.  The monthly figure for each is around 3.5 million; the difference between the two is statistically significant only +/- 100,000.

Positives in the report:  wages continue to rise at 2.6% annually; employment in the mining industry, which includes oil and gas, may be bottoming after two years of decline.

 

The real significance of the September ES is in its inoffensiveness.  There’s nothing in it that could even remotely be considered as a check on the Fed’s desire to raise short-term interest rates before yearend.

 

 

 

the September 7th Job Openings and Labor Turnover Survey (JOLTS) report

September 9, 2016 By in Federal Reserve, JOLTS report, Uncategorized Tags: , , , , , , , , Leave a comment

The Bureau of Labor Statistics of the Labor Department released its latest JOLTS report on Wednesday.

The main results:

–nationwide job openings are now at 5.9 million, the highest figure in the 16 year history of the report.  This is substantially above the 4.5 million level of 2006-07.

–the rate of new hires has been flat for about two years at just over 5 million monthly.  While this is 5% – 10% below the rate of 2006-07, the very high number of job openings would have been consistent with an unemployment rate of 3% ten years ago.  This seems to me to be a point in favor of the idea that the main impediment to filling jobs is finding workers with needed skills.

–3 million workers are voluntarily leaving their jobs monthly.  This is a sign they’re confident of finding employment again without much difficulty.  That’s back to the pre-recession levels of 2006, and almost double the recession lows.

All of this argues that the US is at or near full employment.  On the other hand, however, there’s little sign of the upward pressure on wages that this situation would have produced in the past.

 

Whatever the reason for slow-rising wages, it seems to me there’s no reason in the employment figures for the Fed to maintain anything near the current emergency-room-low level of short-term interest rates.

 

 

politics and the Federal Reserve

September 6, 2016 By in Uncategorized Tags: , , , , , Leave a comment

In my post last Friday on the Labor Department’s most recent Employment Situation report, I commented that I thought it unlikely that the Fed would raise short-term interest rates before the election in November.  How so?   …because the Fed worries about accusations that it would be intruding into the electoral process.

A reader commented that he thought such worries would be silly, either on my part or the Fed’s or both.  I thought I’d respond here.

I agree that it makes little difference for the economy whether the Fed Funds rate is at 0.25% or 0.50%.  In fact, one could easily make the argument that extreme money stimulus is no longer needed and that the US would be better off with higher rates rather than lower.

 

A generation ago, when controlling nominal short-term interest rates was the Fed’s sole policy tool, it was the norm for the sitting President to pressure the Fed in an election year to lower rates, or refrain from raising rates, in order to keep his party in power.  It was also normal for the Fed to acquiesce.  Monetary policy lore says that Gerald Ford was the first president not to do so–and he lost his reelection race.  This behavior also gave rise to the belief that an election year would usually be an up year for stocks, followed by difficulties during the first year of the next term, as the new president removed the extra stimulus.

 

The appointment of Paul Volcker as Chairman of the Fed with a mandate to get the runaway inflation of the late Seventies under control changed this situation, making the Fed the de facto government mechanism for implementing economically necessary but politically toxic decisions to slow the pace of growth.

 

Seeking not to return to its role as a tool of one political party or another, the Fed seems to outsiders to have developed a rule that it will not act within, say, four or five months prior to a presidential election, to either raise or lower rates.  One might otherwise argue that it is giving an economic boost to–or at least signalling its approval of–the sitting president by lowering rates.  It would signal disapproval by raising them.

 

However, as Alan Kaplan points out, the Fed is political.  One could easily maintain that the Fed has enabled the continuing failure of Congress to enact sensible fiscal measures to support economic growth.  (The other side of the argument would likely be that although members of Congress may have cultural agendas, the ones who show up at briefings by the Fed are shockingly ignorant about basic economics.  So they have no idea of how to craft prudent fiscal stimulus.)

One other issue.  The emergency-low interest rate policy we’ve had in place for eight years places the interests of borrowers ahead of those of savers.  Another political decision.  A generation or two ago the latter would have been the ultra-wealthy.  In today’s world, savers are Baby Boomer retirees, whose ability to establish a secure stream of interest income to support their lifestyles has been diminished by government policy.

 

the Federal Reserve and the election

August 4, 2016 By in Federal Reserve, Uncategorized Tags: , , , , , , 1 Comment

The Fed is in an awkward position.

From a monetary stimulus perspective, the US has been in the equivalent of hospital intensive care for eight years.  In fact, by some measures the amount of stimulus being applied to the economy today is greater than it was during the depths of the 2008-2009 recession.

On the other hand, there’s the cautionary tale of Japan, which has been in quasi-recession for almost three decades.  At least part of this is due to three instances–one monetary, two fiscal–where the Land of Wa withdrew stimulus prematurely and nipped recovery in the bud.  Japan’s history also seems to show that reversing a policy mistake once made doesn’t undo all the damage of having made it in the first place.  This is the cause of the Fed desire to err on the side of having too much stimulus or having it for too long.

The Fed knows, too, that the legislative and executive branches in Washington are dysfunctional–that there’s no hope of government spending that would attack pockets of economic weakness through, say, programs to retrain workers displaced by technological advance or on repairing aging infrastructure.  This is despite the fact that extra dollops of monetary stimulus only improve the overall economic tone of the country and are less and less effective at addressing specific issues of great concern like chronic unemployment and bad roads.  On the other hand, the Fed is enabling this craziness by monetary accommodation.

On top of all this, the Fed is hemmed in by the presidential election cycle.  It typically does not want to make a move that could be interpreted as an attempt to influence the November election, either by lowering rates to make the economy seem more vigorous (favoring the incumbent) or raising them to make it seem less so (favoring the challenger).  In today’s case, of course, it has no scope to do the former.  And the Republicans are the party that wants to eliminate the Fed as an independent body (a lunatic move, from an economic standpoint).

So, what is the Fed going to do?

Its recent rhetoric says it wants to raise rates again before yearend.  There are three scheduled meetings left in 2016:  September, November and December.  It would seem to me that acting after either of the first two amounts to meddling in the election.  That leaves either an unscheduled meeting in August or the scheduled one in December.

 

 

 

Fed rate hike in June?

May 24, 2016 By in Federal Reserve, Uncategorized Tags: , , Leave a comment

I think the Fed will raise the Fed Funds rate on overnight deposits by 25 basis points in June.

Five reasons:

–I think the economy is in considerably better shape than the consensus realizes

–We’ve been in intensive care for close to a decade.  We’re at the point where remaining in this state is more harmful than moving elsewhere in the hospital

–The Fed is, to some degree, a political animal.  It doesn’t want to be seen as attempting to influence the presidential election, which would have been a routine action by the Fed a generation ago

–Other than psychologically, it really doesn’t matter to the economy whether the cost of overnight borrowing is 0.25% or 0.50%

–Neither political party has a viable economic policy, in my view.  Leaving rates at zero prolongs the Fed’s role in enabling dysfunction in Washington (which seems to me to be the key issue in the election, whether ordinary citizens are articulating this or not).