Reality check its called deprection wages are falling because over all jobs available are falling.Fact number one labor market is shrinking theres 17 million fewer job in usa pays living wage with benfits. Availble skill level of what jobs are offered has fallen to point that employers no longer need to find skilled people to choose from. Last but least the employee . Because of person has bad credit or criminal recored which includes 60 percent people seeking employment employers now have tools to not hire people who are risk. Bottom line is the actual amount jobs in usa is shrinking or in deprecation better explane it . An its excelerating as more baby bommmers retire from highly skilled jobs gone unfilled
1
Josh,
Please tell us, in the theory of "non-accelerating inflation" what is highest level of profits that can be tolerated before it becomes necessary for the Federal Government to intervene with taxes and interest rate hikes to quell the dangers of inflation? I am willing to bet that you do not know the answer to that, and have also never considered it before in your life. All you know is, when it is time to beat down wages through Federal action.
Please tell us, in the theory of "non-accelerating inflation" what is highest level of profits that can be tolerated before it becomes necessary for the Federal Government to intervene with taxes and interest rate hikes to quell the dangers of inflation? I am willing to bet that you do not know the answer to that, and have also never considered it before in your life. All you know is, when it is time to beat down wages through Federal action.
3
What data is used to determine "job openings"?
3
What the generality that as unemployment falls wages should rise ignores is that while unemployment was rising in the aftermath of the recession, wages did not fall (although the same "logic" says they should). In fact, between the start of the recession in December 2007 and peak unemployment in October 2009 current dollar hourly wages of all private sector payroll employees rose by 5.1%, while the CPI-U rose by 2.8%, for an increase in real wages of 2.2%.
The Fed's statements and its mandate are simply a form of deception. Its actions have nothing, whatsoever, to do with the unemployment rate. Since the crisis began, they have been focused almost entirely on bank activity in interest rate derivatives markets and following the guidance of heads of the derivatives trading divisions at the major banks. Banks are sitting on trillions of instruments that would be potentially affected by any rise in rates.
I do not agree with the comment. For example I do not see how the $1.7 trillion the Fed invested as part of the so-called QE asset purchase program in financing new fixed rate mortgage lending for the purchase or refinance of one to four family owner-occupied middle-class homes did anything to impact interest rate derivatives. While the asset purchase program has ended the Federal Open Market Committee has instructed the New York Fed to continue to reinvest all principal that is repaid. Since these are pass-through securities, every time a mortgage loan payment is made the principal portion of the payment is reinvested in financing new mortgage lending. Between August 27 and September 11, the Fed plans to reinvest $14.3 billion in new and refinanced middle class mortgage loans.
That said, it is worth noting that banks currently have more than $2.7 trillion in reserve deposits at the Fed earning interest at 0.25%. about $563 million a month. The Fed has announced that when it starts to raise the Fed funds rate target the interest paid on reserves will also be increased to match the top of the Fed funds rate range. Each 25 basis point rate increase will increase interest payments by the Fed to the banks by another $563 million a month. That is all money that otherwise would be paid to the American people (aka the Treasury).
That said, it is worth noting that banks currently have more than $2.7 trillion in reserve deposits at the Fed earning interest at 0.25%. about $563 million a month. The Fed has announced that when it starts to raise the Fed funds rate target the interest paid on reserves will also be increased to match the top of the Fed funds rate range. Each 25 basis point rate increase will increase interest payments by the Fed to the banks by another $563 million a month. That is all money that otherwise would be paid to the American people (aka the Treasury).
2
The reasons to raise rates are: (1) banks are lending, and (2) we can safely do so given the health of the economy and it would be nice to be able to lower rates in the future in case of another recession. Having our back up against the wall like this is a weak position.
"Jobs Forecast Is Another Reason for the Fed Not to Raise Rates" . . .
Wall Street: (we hope), (we hope), (we hope), (we hope), (we hope), (we hope), (we hope), (we hope), (we hope), (we hope), (we hope), (we hope), (we hope), ...
Wall Street: (we hope), (we hope), (we hope), (we hope), (we hope), (we hope), (we hope), (we hope), (we hope), (we hope), (we hope), (we hope), (we hope), ...
3
If this article is true, we do not adequately measure, let alone publish, unemployment statistics that mean anything useful. If 5.0% is the old 7. %, perhaps the measure is flawed.
4
The labor market looks pretty tight to me. The ratio of first-time jobless claims to the labor force is at an all-time low. There are about 5.2 million job openings. For the last three months the job openings level has been higher than at any time since January 2001. The percentage of the Civilian Non-institutional Population counted by the Bureau of Labor Statistics as "not in the labor force, want a job now" is lower today than it was at comparable points following the milder recessions of 1981-82 and 1990-91. Also, 48% of small businesses surveyed (NFIB small business optimism index) say they find few or no qualified applicants for positions they need to fill.
1
The fed should wait to increase interest rates. Growth usually increases during the last quarter of the year, partly because of increased demand for goods. If wages are still stagnant during this time, or not raised as much as expected, it might still suggest we are not ready to increase rates. The uncertainty in China also warrant closer attention before rates increase.
4
The economy is still not good. Ive been unemployed for 9 months after getting laid off from a tech company in the Bay Area. I thought I would get a new gig having an MBA and good work experience, but its not happening. Companies are reticent to hire unless they find that special unicorn. There is not even close to a labor shortage and companies are in no hurry to hire.
15
It is time to restructure the jobs report, by class and quality and wage. To speak of jobs as one category is meaningless and misleading, unless one knows if they are good jobs, jobs sufficient to support an individual, a family, sufficient to buy a car, rent or own good housing. Fall is knocking at the season's doors. Apples will soon be on the trees; some taste good, some are terrible and forest old, some are full of worms, and others only good for cider. Jobs are like these apples.
17
Mr. Barro, et al.,
Who does the Fed lend money to? Banks. Are banks suffering? No, in fact banks are making a bundle borrowing at zero-percent interest and lending at double digit interest. So, why would the Fed charging the banks interest on loans create inflation? Is there really a correlation? Perhaps it is just the Fresh-Water school being inflation phobic.
We the People bailed out the banks that caused the crash of 2008 (no it wasn't Fannie and Freddie it was the commercial banks that committed fraud) and we gave them zero-percent loans instead of jail time as a punishment.
Those banks are borrowing our money at zero-percent and charging us double digits while pocketing record profits. And all you worry about is the inflation that you have been claiming to be right-around-the-corner since 2008.
It is about time for the banks to start paying interest to the savers. For the moment I'll settle for single digits in front of the decimal point.
Who does the Fed lend money to? Banks. Are banks suffering? No, in fact banks are making a bundle borrowing at zero-percent interest and lending at double digit interest. So, why would the Fed charging the banks interest on loans create inflation? Is there really a correlation? Perhaps it is just the Fresh-Water school being inflation phobic.
We the People bailed out the banks that caused the crash of 2008 (no it wasn't Fannie and Freddie it was the commercial banks that committed fraud) and we gave them zero-percent loans instead of jail time as a punishment.
Those banks are borrowing our money at zero-percent and charging us double digits while pocketing record profits. And all you worry about is the inflation that you have been claiming to be right-around-the-corner since 2008.
It is about time for the banks to start paying interest to the savers. For the moment I'll settle for single digits in front of the decimal point.
9
Double digit interest rates? You need to switch banks. I'm paying less than 3 percent on my car loan.
2
Bill, et al.,
Actually I was referencing the largest portion of bank lending - credit cards. That is where the double-digit lending takes place and the banks are using free cash from the Fed to fuel the credit card business.
To be sure, if you are a person of means with a good to excellent FICO score (as I am) you get great interest rates on loans. But still lousy interest on savings.
Actually I was referencing the largest portion of bank lending - credit cards. That is where the double-digit lending takes place and the banks are using free cash from the Fed to fuel the credit card business.
To be sure, if you are a person of means with a good to excellent FICO score (as I am) you get great interest rates on loans. But still lousy interest on savings.
11
The writer misses what the Fed is doing. It wants to normalize rates. We have low inflation, low unemployment, and a growing economy if we can't normalize rates now when will we? Sooner or late a recession will come and they don't want to left with only QE4 as their only tool. If they wait for the perfect time they will doing nothing. The core problem is political. Congress reject fiscal stimulus leaving the country with only monetary stimulus. When all you have is monetary stimulus you are forced to take more risks with policy.
11
Gee, dudley must have gotten the call from goldman sachs.
Savers and seniors hosed again as the speculators, debtors, deadbeats and banks feast
on their wealth. No interest on your savings for
7 years. A lot of seniors now have little left of their retirement principal and if they were suckered into the dji for yield, oh boy.
But dudley, summer, yellen, bernanke and grabspan all sitting fat and happy.
Sovereign risk was once associated with the governments of countries. Now it can be defined as the risk associated with the non-elected central banks of governments run by wall street lapdogs.
Savers and seniors hosed again as the speculators, debtors, deadbeats and banks feast
on their wealth. No interest on your savings for
7 years. A lot of seniors now have little left of their retirement principal and if they were suckered into the dji for yield, oh boy.
But dudley, summer, yellen, bernanke and grabspan all sitting fat and happy.
Sovereign risk was once associated with the governments of countries. Now it can be defined as the risk associated with the non-elected central banks of governments run by wall street lapdogs.
3
You seem to think you have some inherent right to interest on savings. Interest on savings is dependent on someone else borrowing that money and paying that interest - bottom line is that right now not enough people want to borrow.
In those seven years of no interest, equity prices have doubled, even after this recent correction.
As the old saying goes, nothing ventured, nothing gained. If you have nothing left of your retirement principal, you have only yourself to blame.
In those seven years of no interest, equity prices have doubled, even after this recent correction.
As the old saying goes, nothing ventured, nothing gained. If you have nothing left of your retirement principal, you have only yourself to blame.
8
By transferring trillions of tax dollars and lost interest on savings from the middle classes and seniors to Wall Street during the past 7 years, the self-serving Fed has suppressed spending, labor participation, and wages for all but the wealthy, while simultaneously increasing income inequality. All economic data for the past 7 years clearly demonstrate this relationship, and the unemployment data mentioned in this article do not accurately reflect labor participation. The Fed works primarily for the 1%, at the expense of the general economy, and will resist a rate hike as long as it can get away with it.
10
Your rant does not make sense. Lower Fed interest rates allow lower interest bank loans which perk up the economy, lifting employment...exactly as has happened. The lack of wage inflation indicates there is still slack in employment. It has also presented a great opportunity for the federal government to generate jobs through infrastructure investment. The lack of effort in that regard by our Republican-controlled congress is the only lost opportunity.
24
Chris, I had my cash deposits (e-fund in CDs) structured so that even a modest interest rate would cover the annual property taxes on my home. Since ZIRP I've been paying those taxes out of current income.
That is THOUSANDS of dollars I am not pumping into the general economy via home improvements/remodeling, landscaping, big-ticket appliance purchases, a new furnace/AC and other projects that all would have benefited local small business persons. Not to mention trips that I have not taken and other discretionary spending curtailed in order to write checks for property taxes.
Believe it or not, we savers stimulate the economy in myriad ways, and it's foolish to assume that only borrowers do so. But as usual the prudent pay the price and the imprudent skate.
That is THOUSANDS of dollars I am not pumping into the general economy via home improvements/remodeling, landscaping, big-ticket appliance purchases, a new furnace/AC and other projects that all would have benefited local small business persons. Not to mention trips that I have not taken and other discretionary spending curtailed in order to write checks for property taxes.
Believe it or not, we savers stimulate the economy in myriad ways, and it's foolish to assume that only borrowers do so. But as usual the prudent pay the price and the imprudent skate.
6
Thanks for explaining how the probability of a rate increase works; there are a number of these comparisons between instruments of different maturity or nature (e.g., treasury vs. inflation adjusted treasury to identify inflationary expectations, TED spread, etc.) that are somewhat new and interesting to analyze. More on such comparisons please!
3
Is the Republican run CBO now factoring in reduction or elimination of Social Security, thereby leading to fewer people retiring, or retired people having to look for a job to support themselves?
1
No, the CBO makes all its estimates, except for estimates of the budgetary impact of new legislation, on the assumption that current law will remain in effect. For example, the estimates made from the time the temporary Bush tax cuts became law until they were for the most part made permanent by the American Taxpayer Relief Act of 2012 (enacted in January 2013) assumed the Bush tax cuts would not be extended. Fore example, in August 2012 the CBO reported "the sharp increases in federal taxes and reductions in federal spending that are scheduled under current law to begin in calendar year 2013 are likely to interrupt the recent economic progress. By CBO’s estimate, that fiscal tightening will probably lead to a recession in 2013 and to an unemployment rate that remains above 8 percent through 2014."
3
There are quite a lot of folks like myself who have jobs that are inadequate to pay the bills or outside of our original fields who continue to apply for any job that offers us hope of improving our situation.
This is vastly different from my early years as a worker where I felt obligated to put in my time before seeking the next step of career advancement. As long as that was possible, I advanced in the old way. Now I apply for everything that offers any hope of advancement. I expect I'm not alone I this.
This is vastly different from my early years as a worker where I felt obligated to put in my time before seeking the next step of career advancement. As long as that was possible, I advanced in the old way. Now I apply for everything that offers any hope of advancement. I expect I'm not alone I this.
20
Yes, and because we are expected to say that we want the job because of our altruistic love of humanity and not cold hard cash. Doing a job because it is "nice" was never a good enough reason for me. I dream of the day I could just go back to doing some dumb office job that I am good at rather than having to pose as someone who wants to save the world.
6
NAIRU Is Nonsense
As with many other economic theories, NAIRU is contradicted by the facts. For example, the unemployment rate increased from 5.6% in 1972 to 7.6% in 1981, but the inflation rate also increased in that decade from 3.2% to 10.3%. Then unemployment fell from 9.7% in 1982 to 5.5% in 1988 while inflation fell from 6.2% to 4.1% simultaneously.
So an increasing unemployment rate correlated with an increasing inflation rate while a decreasing unemployment rate correlated with a decreasing inflation rate -- exactly the opposite of what NAIRU implies. There is no obvious trade off between stable inflation and unemployment as Keynesian economist Alvin Hansen pointed out decades ago.
As with many other economic theories, NAIRU is contradicted by the facts. For example, the unemployment rate increased from 5.6% in 1972 to 7.6% in 1981, but the inflation rate also increased in that decade from 3.2% to 10.3%. Then unemployment fell from 9.7% in 1982 to 5.5% in 1988 while inflation fell from 6.2% to 4.1% simultaneously.
So an increasing unemployment rate correlated with an increasing inflation rate while a decreasing unemployment rate correlated with a decreasing inflation rate -- exactly the opposite of what NAIRU implies. There is no obvious trade off between stable inflation and unemployment as Keynesian economist Alvin Hansen pointed out decades ago.
7
But if you are the Federal Reserve, or the congressional budget committees, you have only certain tools available to you, and the use of those tools does come with the tradeoffs that are represented by the Phillips Curve. When the Fed under Paul Volcker moved in 1980-81 to bring down inflation by means of tight monetary policy, the unemployment rate went up a lot, and stayed there until expectations changed. The way you have picked your comparison dates muddies that story.
3
This is good from Paul Mathis. But NAIRU was easy for many economists and I believe that businesses were fine with a program that raised unemployment and bashed workers. The 70s and 80s reset power relations bt. employers and employees and NAIRU helped.
1
What you say is correct only if you operate on the assumption that the *only* cause of inflation is robust hiring leading to wage inflation, which then spills over to the rest of the economy as employers raise prices to cover increased labor costs. That is one traditional cause of inflation, but hardly the only one.
Another common cause of inflation is a supply shock. If, for instance, you take the price of a basic commodity (one that cannot easily be substituted for another, such as oil) and quadruple its price, the inflationary consequences will ripple through the economy. This is exactly what happened in the late 1970s, and it goes a long way towards explaining stagflation -- anemic growth accompanied by inflation.
You correctly point out that "unemployment fell from 9.7% in 1982 to 5.5% in 1988 while inflation fell from 6.2% to 4.1% simultaneously." But an unemployment rate of 5.5% is safely above NAIRU. The unemployment rate has to fall *below* that rate for inflation to accelerate, which is why it's called the "Non-Accelerating Inflation Rate of Unemployment." If the unemployment rate is above the NAIRU line, inflation will not accelerate (at least not due to low unemployment).
Another common cause of inflation is a supply shock. If, for instance, you take the price of a basic commodity (one that cannot easily be substituted for another, such as oil) and quadruple its price, the inflationary consequences will ripple through the economy. This is exactly what happened in the late 1970s, and it goes a long way towards explaining stagflation -- anemic growth accompanied by inflation.
You correctly point out that "unemployment fell from 9.7% in 1982 to 5.5% in 1988 while inflation fell from 6.2% to 4.1% simultaneously." But an unemployment rate of 5.5% is safely above NAIRU. The unemployment rate has to fall *below* that rate for inflation to accelerate, which is why it's called the "Non-Accelerating Inflation Rate of Unemployment." If the unemployment rate is above the NAIRU line, inflation will not accelerate (at least not due to low unemployment).
4
Lots going on in the labor market, as we might better understand a few years from now.
Of course, there is the Baby Boom exit, which is replacing higher cost older workers with lower cost younger workers, especially when health care costs are considered.
That is also creating labor shortages in many sectors, from teachers to pilots to skilled technicians.
Then there is the demographic bust in Mexico caused by birth rates falling below those of the US, reducing immigration and creating shortages in low wage agriculture, construction, restaurant and other categories. With the Mexican Pesos up from 13P to 17P/US$, more job growth in Mexico will also slow immigration.
So in a few years, we'll be talking more about labor shortages and less about stopping immigration, especially in the Southern States which rely heavily on undocumented workers.
Of course, there is the Baby Boom exit, which is replacing higher cost older workers with lower cost younger workers, especially when health care costs are considered.
That is also creating labor shortages in many sectors, from teachers to pilots to skilled technicians.
Then there is the demographic bust in Mexico caused by birth rates falling below those of the US, reducing immigration and creating shortages in low wage agriculture, construction, restaurant and other categories. With the Mexican Pesos up from 13P to 17P/US$, more job growth in Mexico will also slow immigration.
So in a few years, we'll be talking more about labor shortages and less about stopping immigration, especially in the Southern States which rely heavily on undocumented workers.
5
I'd love to see a general labor shortage. When was the last time we had one? We will know that there is one when wages really start to rise and keep on rising. I am skeptical. Employers have alternatives in many cases: more automation, more outsourcing, and more older people going back to work, because they want to or because they have to to pay the bills.
16
1968 was the last time we had a labor shortage.
6
Currently, courtesy of the U.S. Congress, this nation's economy has no level playing field, which has resulted in unintended consequences and massive distortions. If zero interest rates were available to every potential borrower, you'd better believe there would be a general labor shortage, right here, right now.
Instead, we're looking at an economy that can probably self-destruct on a moment's notice due to any one of numerous potential ignition points, starting with revolution. If one doesn't believe that, then there should be no problem simply writing zero interest rates into the Constitution as a right for everyone.
Instead, we're looking at an economy that can probably self-destruct on a moment's notice due to any one of numerous potential ignition points, starting with revolution. If one doesn't believe that, then there should be no problem simply writing zero interest rates into the Constitution as a right for everyone.
2
As to the treasury curve numbers they reflect other factor than rate hike probabilities e.g. currencies moves and risk factors.
This country has had job growth when rates were much higher and monetary conditions not so extremely loose. Negative rates after inflation create significant distortions which impede economic growth and can lead to troubles down the road.
This country has had job growth when rates were much higher and monetary conditions not so extremely loose. Negative rates after inflation create significant distortions which impede economic growth and can lead to troubles down the road.
1
Give this man the Nobel Prize for Economics!
Voting members of the Federal Open Market Committee, have long been talking about the timing of rate increases. At the present time, however, we are still recovering from a pronounced economic slowdown, which has wreaked havoc on workers, many of whom are still searching for stable full-time employment, as well as sustained wage increases. Moreover, statistics show that core inflation has been running well below the Federal Reserve's already low target of 2 percent. Consequently, any imperative to raise rates cannot be function of employment or inflation figures.
The comments of Federal Reserve officials, therefore, suggest a believe on their part that higher interest rates, in and of itself, is economically desirable, rather than a reflection of employment and inflation, which in and of themselves, are significant. There is no basis for such a belief, and to follow through and raise interest rates without strong evidence that inflation will reach target levels for a sustained period of time risks economic contraction and possible deflation. Given these asymetric risks, the position of hawkish voting members of the FOMC is untenable.
The comments of Federal Reserve officials, therefore, suggest a believe on their part that higher interest rates, in and of itself, is economically desirable, rather than a reflection of employment and inflation, which in and of themselves, are significant. There is no basis for such a belief, and to follow through and raise interest rates without strong evidence that inflation will reach target levels for a sustained period of time risks economic contraction and possible deflation. Given these asymetric risks, the position of hawkish voting members of the FOMC is untenable.
12
Be careful what you wish for. Another seven years of ZIRP with the FED continuing as the economy's scapegoat, and there will be no FOMC, no Congress, no government.
It is time for the FED to throw the hot potato back into the hands of the people's House of Representatives, which has the Constitutional responsibility for the nation's economic well-being. Return rates where they belong, and force our elected Congress to be responsible for any mess that results.
It is time for the FED to throw the hot potato back into the hands of the people's House of Representatives, which has the Constitutional responsibility for the nation's economic well-being. Return rates where they belong, and force our elected Congress to be responsible for any mess that results.