So far, slowing employment growth.
Figure 1: Private nonfarm payroll employment (bold black), preliminary benchmark (gray square), Bloomberg consensus as of 8/30 (blue +), QCEW private, seasonally adjusted by author using X-13 (teal), from ADP (tan), 000’s, s.a. Source: BLS, Bloomberg, ADP via FRED, author’s calculations.
So with job growth slowing infl,ation consistently at a 2-3% annual rate for most of 2023, and the savings rates rising (as shown in today’s GDP report), why is the Fed Funds rate continuing at 5.25%?
There is no logical reason for it, beyond wanting things to go back to a pre-2020 situation where the average worker had little or no leverage. But with wage growth beating the lower level of inflation, why wouldn’t you want this situation to continue?
I agree with you. But un an effort to be fair to Fed folk, I offer three plausible explanations for maintaining restrictive monetary policy for an extended period:
1) With employment still growing at well above the long-term sustainable pace, wages could put upward pressure on inflation.
2) The FOMC adopted a new operational plan just prior to the arrival of Covid which aims at hitting the 2% inflation target as a medium and long-term average. Inflation has been too high, so according to the new plan, they need to bring it back below 2% for a while.
3) Low rates enriched a lot of rentier types. That’s bad, and the way to correct that mistake is to maintain higher rates. Here’s a rendering of Shillers P/E ratio:
https://www.multpl.com/shiller-pe
It’s near 30 now. The historical average is closer to 15. That is arguably a source of inequity and of financial excess.
The problem is that the cost of reining in the economy falls very unevenly. The employed and the unemployed suffer the cost very differently.
One of the questions, sort of hiding in the background is, if the equities market is largely overvalued now, and the rates on bonds being more attractive than what one can expect on stocks, how much longer do we keep increasing rates until an equities crash occurs. It’s a topic of discussion among the sharpies I can promise you, even if the banks/broker dealers are not putting it in their notes/write ups/ summaries.
iow when and how does a bubble leak out…..
or burst?
imo there are a couple of bubbles
and a lot of un marketable bills/bonds
look at this reverse repurchase agreement chart, max view.
look at weekly h.4.1 from the fed.
keeping interest rates “stable”.
Good news: The Fed has not yet managed to harm the real economy much.
Bad news: It may still do so, since many of the effects take time to develop.
Other news: I think it its time to appoint some labor economists to the Fed – so they can get their priorities aligned with the people (not the Wall Street people).
I thought this article is worthy of a read if you can make it past the firewall. I would even argue some of these tests are harmful in that they are very intense with radiation:
https://www.wsj.com/health/wellness/full-body-preventive-scan-cost-eb291fcc
Kevin Drum is right about this but Kevin will get JohnH all huffy and puffy!
Ukraine is allowed to fight back against Russia
https://jabberwocking.com/ukraine-is-allowed-to-fight-back-against-russia/
Russia has got to be the whiniest warmonger in history. They are constantly “accusing” Ukraine of one thing or another, as if it were somehow unfair that they’re fighting back. It’s a war, Vladimir, and you started it. Don’t try to act offended because Ukraine is trying to win.
Check out the newspaper headline in his post.
“Ukraine is allowed to fight back” is just a weak variant of the “Ukraine is winning narrative,” which has recently been challenged by the emerging narrative that Ukraine is not likely to succeed and that negotiations should be considered.
Ahhh – did Putin not feed Jonny boy his dog food for this week? Keep the moronic comment coming and maybe you’ll get a bone.