MacroScope

“This was really eye-opening for me”: Fed’s Raskin shocked at low quality of work at local job fair

The first portion of Federal Reserve Governor Sarah Bloom Raskin’s remarks to the Roosevelt Institute earlier this month were pretty standard central bank fodder. Raskin, on the dovish side of Fed monetary leanings, said U.S. unemployment was still too high, and far more progress was needed in bringing a somnolent job market back to life.

But the second half of her comments offered an unusually personal look at one Fed official’s dismay with the country’s economic situation. Stumbling into a job fair near her house, Raskin was stunned by the generally low quality of positions available. In her own words:

I became interested in this question of quality somewhat by accident. I did something atypical one day. I decided on my way into work I would stop at a jobs fair. There was a jobs fair at a local community college close to my home and I thought, I’m going to, you know, instead of pounding through all this heavy data that we typically look at at the board of governors, let me just go into this job fair. It turned out to be a really interesting morning, I have to say.

I should preface this by saying – purely anecdotal here, this is not something that is going to count as hard science or pass much muster in terms of statistical significant. But it was really interesting to me.

I went in and I have to say the kinds of jobs that were being offered surprised me. There were a number of restaurant jobs, some jobs from the military. There was one job from a community bank. Then there were a slew of jobs from, of all places, swimming pool companies. I thought that was kind of interesting. When I inquired about what these jobs were, they were lifeguard jobs, which I thought also was quite telling because back in the day to be a lifeguard I didn’t think quite required an advanced degree. These were the kinds of jobs we got in high school summers, I thought.

To ‘taper’ or not to ‘taper’? Fading the Fed semantics debate

Is Federal Reserve Chairman Ben Bernanke avoiding the word “taper” in order to temper expectations that the U.S. central bank will ratchet down its massive bond buying program? This is one view that’s been widely bandied about in recent days.

But then why is it that the Fed officials who are most eager to “taper” have pretty much stopped using the word, too?

The last time Dallas Fed President Richard Fisher used the “T” word in a public speech was in February. But there’s no evidence at all that he’s backing off from his support of the idea. He’s been adamant the Fed should not yank the punch bowl away (or, in his words, go from Wild Turkey to cold turkey) but should gradually reduce stimulus.

No relief in sight for millions of unemployed Americans: Cleveland Fed report

The new normal is getting old. And when it comes to America’s stuttering employment market, it’s not going to get much better any time soon, according to a new report from the Cleveland Fed.

The U.S. economy created 175,000 new jobs in May, while the jobless rate rose slightly. It was a neither-here-nor-there sort of report. In the Labor Department’s own words: Both “the number of unemployed persons, at 11.8 million, and the unemployment rate, at 7.6 percent, were essentially unchanged in May.” 

Unfortunately, this anemic pattern is likely to be long-lasting, write Cleveland Fed economists Mark Schweitzer and Murat Tasci.

Brazil’s capital controls and the law of unintended consequences

Brazilian economic policy is fast becoming a shining example of the law of unintended consequences. As activity fades and inflation picks up, the government has tried several different measures to fix the economy – and almost every time, it ended up creating surprise side-effects that made matters worse. Controls on gasoline prices tamed inflation, but opened a hole in the trade balance. Efforts to reduce electricity fares ended up curbing, not boosting, investment plans.

Perhaps that’s the case with yesterday’s surprise decision to scrap a key tax on foreign inflows into fixed-income investments. The so-called IOF tax was one of Brazil’s main defenses in its currency war, making local bonds less appealing to speculators and helping prevent an excessive appreciation of the real.

As the Federal Reserve started to discuss tapering off its massive bond-buying stimulus, investors began to flock back to the United States. So with less need to impose capital controls, Brazil thought it would be a good idea to open its doors again to hot money. Analysts overall also welcomed the move, announced by Finance Minister Guido Mantega in a quick press conference on Tuesday, in which he said that excessive volatility is “not good” for markets and that Brazil was headed to a period of “lesser” intervention in currency markets.

CME Group, home to bets on Fed policy, scrambles to keep watch

These days, it seems, everyone is trying to keep up with shifting market expectations for the Federal Reserve’s monetary policies. CME Group’s Fed Watch, which delivers a snapshot of those expectations based on futures tied to the Fed’s target for short-term rates, is no exception.

Rate futures traded at CME have dived since Fed Chairman Ben Bernanke said last week that the U.S. central bank may decide to cut back on its purchases of Treasuries and mortgage-backed securities in the next few Fed policy meetings if data shows the economy is gaining traction. CME’s website dutifully translated the drop in rate futures into rising market expectations that the Fed’s first rate hike since 2008 could come in early 2015.

But the site was silent on the likelihood of the Fed raising rates any earlier – it simply didn’t include that data, because as recently as a week ago, the probabilities of a rate hike in 2014 were close to zero. Bernanke’s comments, and some strong data, changed all that. By Wednesday, CME had caught up, adding data on meetings in the second half of 2014. Just in the nick of time: by the day’s end, traders were pricing in a rate hike at the Fed’s December 2014 meeting.

What to expect from Bernanke testimony and Fed minutes this week

Financial markets this will be keenly focused on congressional testimony from Fed Chairman Ben Bernanke and minutes from the central bank’s April 30-May 1 meeting, particularly given a thin data calendar. The latter may be the more interesting one, since it will offer hints into how far Fed officials are leaning in a direction of curbing the pace of its bond-buying stimulus, potentially late this summer.

The economic backdrop has been just mixed enough to leave policymakers cautious about taking their foot off the gas. Still, if we get a few more months of strength in the labor market, Fed officials may just be able to say “substantial progress” has been made in the outlook for the labor market – their stated precondition for an end to asset buys.

Still, Harm Bandholz at Unicredit says markets should not confuse a debate about tapering bond buys with some immediate reversal of the Fed’s policy of ultra low rates.

Kocherlakota on Fed stimulus: Don’t stop ‘til you get enough

Ann Saphir contributed to this post

Minneapolis Federal Reserve President Narayana Kocherlakota has gone from being one of the U.S. central bank’s more hawkish characters to arguably its most dovish. In line with this transformation, Kocherlakota told a conference sponsored by the University of Chicago’s Booth School of Business that the Fed, despite its extensive bond-buying over the last few years, has not done enough to spur growth.

The FOMC has responded to this challenge by providing a historically unprecedented amount of monetary accommodation. But the outlook for prices and employment is that they will remain too low over the next two to three years relative to the FOMC’s objectives. Despite its actions, the FOMC has still not lowered the real interest rate sufficiently in light of the changes in asset demand and asset supply that I’ve described.

To get a sense of what he means, see the graphs below: U.S. inflation continues to undershoot the Fed’s 2 percent target, and is actually drifting lower, while unemployment, though down from crisis peaks, remains stubbornly high.

SF Fed’s Williams in the driver’s seat

In the barrage of Federal Reserve speakers making the rounds on Thursday, it is notable that San Francisco Fed President John Williams was the one that managed to move markets, allowing the dollar to recover losses. Why did his voice rise above the din? For one thing, he’s seen as a dovish-leaning centrist whose views closely resemble the Bernanke-Yellen core of the central bank.

Plus, he took the oft-abused economy-car analogy in a, er, new direction:

If we were in a car, you might say we’re motoring along, but well under the speed limit. The fact that we’re cruising at a moderate speed instead of still stuck in the ditch is due in part to the Federal Reserve’s unprecedented efforts to keep interest rates low. We may not be getting there as fast as we’d like, but we’re definitely moving in the right direction.

Small rays of hope brightened Canada’s economic outlook last week

 All data released last week point to a far better first quarter growth in Canada than previously expected, prompting economists to revise up their predictions.

In a Reuters poll conducted early last month, forecasters predicted that Canada’s economy expanded by just 1.6 percent on an annualised basis in the first three months of this year.

But that consensus could prove to be too low, with many now expecting growth to be close to 2 percent or even higher, likely a welcome sign for Stephen Poloz who was named Bank of Canada’s new governor last Thursday and will replace Mark Carney on June 3.

Scotland catches up with the UK economy – and maybe more?


Updated to show Scotland’s composite PMI has bettered the UK equivalent for seven straight months now, after Monday’s data.

For the first time in a long while, Scotland’s economic performance has caught up with the UK average– and there is at least some evidence to suggest it’s doing slightly better than the British baseline.

In general, the Scottish economy has come second-best behind the poor UK average, at least since the full onslaught of the global financial crisis hit in September 2008 with the collapse of Lehman Brothers.