The WSJ says the Fed has to figure out whether inflation is around the corner. Allegedly, the wrong choice could cripple the economy.
No question looms larger for Federal Reserve Chairman Jerome Powell than this: How low can the U.S. unemployment rate safely go?
Only twice in the past half-century has unemployment fallen to its current rate of 3.8%—for a few years in the late 1960s and for one month in 2000.
The ’60s episode spurred years of soaring inflation that would take a decade for policy makers to corral. The latter coincided with a technology bubble that, when it burst, caused the 2001 recession.
Confusing Trigger With Cause
The WSJ says the "wrong choice could trigger a recession."
The Fed has already sewn the seeds of the next recession. One extra rate hike will not matter one bit. Bubbles eventually burst, so let's not confuse an alleged trigger with a cause.
How Low Can Unemployment Go?
That's a silly question. The Fed has so distorted the economy with cheap money for so long, that no one should even bother asking the question.
Whatever the "natural" unemployment rate is, neither the Fed nor anyone else can possibly divine the number. Powell at least understands that point. He said the natural rate of unemployment could be anywhere from 3.5% to 5%.
Before we can even begin to address the question "Is the Booming Job Market a Problem?" we should first ask "Is the Jobs Market Booming?"
Danielle DiMartino Booth asks the right question and comes up with the right answer.
She notes that hiring intentions this year are off by almost half compared with 2017.
Some of the best insights into the overwhelming demand for workers can be gleaned from the less-followed but rich data published monthly by Challenger, Gray & Christmas. The firm is best known for its data on layoffs, but its monthly hiring announcements provide great information on the bottlenecks in the labor force.
The big picture is stark. Hiring intentions this year are off by almost half compared with 2017, driven by a collapse in the demand for workers in Information Technology, Entertainment & Leisure, Telecommunications and Retail. What little demand there is can be seen in some of the industries that have the smallest pools of available workers such as Construction, Energy and Electronics.
As difficult as it is to imagine, big parts of the underlying economy have been slowing even as the industrial sector gets juiced by a weaker dollar, the worst year on record for natural disasters in 2017 and fears of a trade war erupting.
New vs Reposted Listings
One thing is certain: the gap between the new job postings and re-postings will be resolved as companies take steps to contain their labor costs. A miracle manifestation of skilled workers to fill the open positions would validate economists’ rosiest forecasts. But miracles are rare. The likelier outcome entails the disruption of the illusion floating markets today.
The only thing missing in Booth's report (and I am sure she understands this quite well) is that jobs are a lagging indicator.
And don't count on a warning either.
Even if the jobs market is booming, that fact in and of itself is a useless predictor of future activity!
Loosey-goosey Fed policy for nine years artificially created all sorts of jobs, especially in low-paying fast food services, drinking establishments, and retail.
The fruits of overexpansion are sewn. The stock market and junk bond bubbles provide sufficient evidence. So let's not fool ourselves as the WSJ did with its discussion of an alleged "dilemma".
It's too late to stop the upcoming recession and stock market collapse no matter what the Fed does or doesn't do this year.
Mike "Mish" Shedlock