As Far as September 17 FOMC Meeting is Concerned, August NonFarm Payroll Is A Non-Issue . . .

There have been several theories floating around for why the Federal Reserve won’t raise rates in September: oil at $40 a barrel means there’s no inflation; the volatility in global markets; falling commodity prices suggest a global slowdown is a risk that might become more likely if China’s growth falters.

I find none of these especially persuasive. The latest excuse for Fed inaction making the rounds is the August employment situation report, out on Sept. 4. August data can be misleading, with seasonal adjustments caused by teachers returning to school and temporary automaker layoffs ending. We could see a weak monthly number and that would put the Fed on hold until at least December, according to various prognosticators.

I don’t know if the Fed will raise rates in September — I say 80 percent chance this year and even money for September. But nonfarm payrolls won’t be the determining factor, for many reasons.

First, is that people get taken in by the recency effect. The tendency to overemphasize the latest number in a data series is well known to statisticians, including those at the Fed. If the August number is an outlier, that variability is understood. Because 11 million jobs have been created since the Great Recession ended in June 2009, one month will not be extrapolated to infinity.

Second . . .


Continues here: Weak Reasons Fed Will Wait on Rates


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  1. rd commented on Aug 31

    Initiating a small rise of 0.25% should be reassuring to the long bond market which is very important to the housing sector as the 10-yr T-bond is the benchmark rate for many mortgages.

    I also think it is important that the Fed not be seen to be a slave of the stock market and the Greenspan Put.

    If the US economy can’t be sustained with a Fed Funds rate of 0.25% then we have much bigger problems than anything the Fed can possibly solve.

  2. RW commented on Aug 31

    The Fed pretty clearly would like to ‘normalize’ interest rate policy but, other than that, there’s not much case for a rate increase. Mark Thoma translates Stanley Fischer’s speech at the Jackson Hole FOMC conference into an interview format to highlight just how weak that case is.

    ‘U.S. Inflation Developments’

    NB: The proposed increase of 25 basis points is not particularly significant if you only focus on the credit channel; i.e., banks et al is not where the action is going to be.

    My own concern is $USD strength and demand for US bonds will only increase if there is rate increase even of minuscule proportions and that will translate into a worsening current account, slackening employment rate, increasing pressure on anyone owing variable rate debt and, eo ipso, decreasing consumer demand.

    • Iamthe50percent commented on Aug 31

      Since we are a net importer, how does a stronger dollar hurt the current account? Doesn’t a stronger dollar mean that we pay less for Chinese goods and mid-east oil?

      Your arguments make sense to me if we were Germany, but we are a lot more like Greece (but with our own fiat money).

    • RW commented on Aug 31

      “Since we are a net importer, how does a stronger dollar hurt the current account?”

      1. Being a net importer means that balance of trade is negative and so is the current account by definition.

      2. A stronger dollar — a more expensive dollar to be more accurate — means that foreign goods out-compete domestic goods on price therefore more are imported and sold here while US production suffers so the problem is exacerbated.

      Greece’s situation and the reasons it is a net importer are fundamentally different. While there are a number of developed countries one might usefully compare the US economy to, Greece would not be one of them along any variable I can think of.

  3. machinehead commented on Aug 31

    Stanley Fischer’s message to emerging markets, whose economies and export prices are weakening, is ‘We don’t feel your pain.’

    Wall Street’s logic is that if a 10% dip didn’t scare the FOMC into holding off on a rate hike, maybe a 20% dip will.

    What is the FOMC’s pain point? We’ll find out soon enough.

    • rd commented on Sep 1

      I must have missed the memo where Congress added the stock market as a third focus for the Fed.

  4. DeDude commented on Sep 1

    We know how to get out of the hole called excess inflation. Volker proved that the Fed has very effective tools to correct the problems if they don’t act in time. But what tools do the Fed have if they turn out to have acted to early and drop us into the same snake pit that Japan is trapped in? What is the credible plan for reversing the effects of acting to early?

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