FOMC | Job Numbers Mean EZ Decision (Comment)

The Effective Fed Funds Rate. Source: FRED, St. Louis Fed. Since Dec. 2008
 the target rate has been between 0 percent and 0.25 percent, i.e., at the
"zero bound"; rate will likely be raised at the next FOMC meeting.

The job numbers from the BLS this morning show total nonfarm payroll employment increased by 211,000 in November.

The unemployment rate was unchanged at 5.0 percent.

Job gains occurred in construction, professional and technical services, and health care. Mining and information lost jobs.

The numbers have been widely anticipated because they are the last before the Ides of December FOMC meeting.

Fed Chair Janet Yellen made clear yesterday in her testimony before the Joint Economic Committee of the Congress that the Fed is ready to raise the zero-bound Federal Funds rate that has been at the zero-bound level since December 2008. The only major concern is lackluster economies in the rest of the world.

Comment

The Fed has a dual mandate (besides the basic one of ensuring stability in financial markets) – its traditional 1913 mandate to preserve the value of the dollar by reining in lending during periods of speculation and therefore inflation, plus its 1946 mandate to ensure full employment.

Interest-rate doves like Paul Krugman and Brad DeLong argue that since the United States has no inflationary pressure, interest rates should not be raised. If inflation is below the 2 percent Fed inflation target, leave rates alone. While unemployment is low, the employment/population ratio is also low and economic growth has been slow.  Why is anyone is thinking of raising interest rates? They are afraid raising rates will kill the economy.

One answer is that the zero-bound rate is an unnatural one, giving no flexibility on the stimulus side. The Fed wants to be able to respond to economic developments in either direction. So long as it is at the zero bound, it is powerless to do much to stimulate demand, notwithstanding the QE initiatives.

FOMC | Job Numbers Flat (Updated Dec. 10, 2015)

Job numbers for September were close to August, after
a sharp downward revision - disappointing. 

Nonfarm payroll jobs rose 142,000 in September.  The unemployment rate remained at 5.1 percent, which is historically low. Jobs grew in health care and information, while mining employment fell along with oil prices.

The September job numbers are flat relative to August, even after (as the BLS also reported this morning) August jobs were revised sharply lower to show only 136,000 jobs added.

Both August and September job-increase numbers are down from prior months.

So far in 2015, payroll job growth has averaged 198,000 per month, below the average monthly gain of 260,000 in 2014.

ADP on Wednesday had indicated job growth of 200,000, up from 180,000 in August, so the job numbers are disappointing for those who were relying on ADP to anticipate a bullish BLS report.

Wages also fell in September.

This raises a question about whether the U.S. economy is ready for a rate hike by the end of 2015. Another way of putting it is that the job numbers could be used (legitimately) as a reason for not raising rates.

The report today was important because the FOMC meets on October 27-28 to decide whether to start a climb back to normal interest rate levels, which have been at the "zero bound" (between zero and 0.25 percent) since the financial meltdown of 2008.

The Fed has been sidelined since 2008 because it has used up its main weapon for encouraging job growth, namely the Federal funds rate. It can't start putting the the interest rate back up to a normal level without risking higher unemployment. Both the Fed and the financial markets are out of shape and the first increase in rates is worrisome.