Tags: OBrien | job | wages | Fed

WaPo's O'Brien: Job Weakness Should Keep Fed on Hold

By    |   Thursday, 23 April 2015 08:00 AM

While the unemployment rate was 5.5 percent last month, the lowest since 2008, the labor market still faces a major problem, says Washington Post reporter Matt O'Brien.

That problem is shadow unemployment, which includes those who want full-time jobs but have either given up looking for them or can only find part-time work.

He cites research from economists Danny Blanchflower and Andrew Levin showing the shortfall between how many full-time jobs we have and how many we need totals 3.5 million.

"That's why it could be awhile — and it'd be a mistake if it isn't — before the Federal Reserve raises rates from zero," O'Brien writes.

The Fed has kept its federal funds rate target at a record low of zero to 0.25 percent since December 2008. Many economists expect the central bank to begin lifting rates in September.

"It makes sense to keep rates at zero until wages are rising," O'Brien says. Average hourly wages climbed only 2.1 percent in the 12 months through March. "That's the market's way of telling us that there aren't as many people who want full-time jobs but can't find them. And besides, it's hard to imagine inflation taking off before that."

The economy's recent spate of weakness has led many experts to push back their forecast for an interest-rate increase by the Federal Reserve to September.

Ace bank analyst Dick Bove of Rafferty Securities also thinks the Fed will stay on hold for a while.

"Expectations that the Fed will raise rates in September or even June are off the mark," he tells Yahoo. "The dollar is simply too strong. It's having a significant impact on the earnings of international companies across the board and it's having an impact on the trade balance."

The Dollar Index, which measures the greenback against six major currencies, hit a 12-year high last month. A strong dollar hurts our exports by making them more expensive in foreign currency terms and makes U.S. corporate revenue earned overseas worth less in dollars.

An early rate hike would lead to a downward spiral, Bove notes. "The trade balance would grow more negative, international companies would lose money overseas, jobs would be lost in the U.S. and the growth of the economy in the U.S. would slow down."

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While the unemployment rate was 5.5 percent last month, the lowest since 2008, the labor market still faces a major problem, says Washington Post reporter Matt O'Brien.
OBrien, job, wages, Fed
378
2015-00-23
Thursday, 23 April 2015 08:00 AM
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