Salient to Investors:

Matthew C. Klein writes:

  • The FRB of Chicago says it would take 4 more years of job gains at the current pace of 195,000 per month to jobs to return to full employment and close the gap that began opening at the end of 2007.
  • The US is on track for a lost decade under the most optimistic assumptions.
  • 112,000 of the 195,000 jobs added last month were in leisure and hospitality and retail, which pay less and have fewer benefits. Part-timer who would rather be working full-time rose in June by 322,000. Average hourly earnings for private-sector workers continue to increase by only 2 percent annually. The number of people who are unemployed or marginally attached to the labor force was essentially unchanged.
  • Most people, including the Fed, do not believe unemployment will go below 6.5 percent and near-term inflation exceed 2.5 percent until sometime in 2015, and begs the question what will happen in the years immediately following, when the Fed starts to tighten?
  • Given the Fed’s projection that the “normal” level of the short rate is around 4 percent, recent developments imply that the Fed’s tightening cycle will be completed sometime in early 2019.
  • William Dudley at FRB of New York says a short rate of 0 percent could be consistent with an unemployment rate of 5.0 percent, as long as inflation continues to be well-behaved. Since the US won’t return to full employment until at least 2017, this could easily mean that the first rate increase won’t occur until 2016 or even as late as 2018.



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