MacroScope

Bernanke’s seven-percent solution

 

Federal Reserve Chairman Ben Bernanke has a problem: how to wean markets from dependence on central bank stimulus. On Wednesday Bernanke did what some of his most dovish colleagues have urged for months. He laid out a clear path for how and when the Fed will bring its third round of bond-buying to a close.

It doesn’t take a master detective to figure out his solution – 7 percent.

“If the incoming data are broadly consistent with this forecast, the committee currently anticipates that it will be appropriate to moderate the monthly pace of purchases later this year, and if the subsequent data remain broadly aligned with our current expectations for the economy, we will continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around mid-year,” Bernanke said in a press conference following the Fed’s two-day policy-setting meeting.

“In this scenario, when asset purchases ultimately come to an end, the unemployment rate would likely be in the vicinity of 7 percent, with solid economic growth supporting further job gains.”

Bernanke’s seven-percent solution has not elicited from markets the same “long sigh of satisfaction” that Sherlock Holmes emitted after shooting up in “The Sign of Four.”

Far from it: stocks tanked and borrowing costs – as measured by yields on U.S. Treasuries – soared.

U.S. job market still in need of a jolt

The monthly payrolls report from the U.S. Labor Department will always be the big kahuna of economic releases.  Other, less prominent indicators of the American job market nonetheless can offer additional insight into the employment backdrop.

Take the clumsily-acronymed JOLTS report, which stands for Job Openings and Labor Turnover Survey. It shows the ratio between job openings and job seekers, as well as the rate of new hires. The latter, unfortunately, is not particularly comforting.

The number of job openings at the end of April was 3.8 million, down slightly from the prior month’s 3.9 million.

What’s a Fed to do? Taper talk persists despite missed jobs, inflation targets

As the Federal Reserve meets this week, unemployment is still too high and inflation remains, well, too low. That makes some investors wonder why policymakers are talking about curtailing their asset-buying stimulus plan. True, job growth has averaged a solid 172,000 net new positions per month over the last year, going at least some way to meeting the Fed’s criteria of substantial improvement for halting bond purchases.

So, either policymakers see brighter skies ahead or they want to get out of QE3 for other reasons they may rather not air too publicly: worries about efficacy or possible financial market bubbles.

“I don’t think the data dependent emphasis is the only ball the Fed is focusing on when mulling over the pace and extent of asset purchases,” says Thomas Lam, chief economist at OSK-DSG.

“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.

What’s in a (trend payrolls) number? The Chicago Fed paper that shook the markets, ever so slightly

      

Ann Saphir contributed to this post

The apparent conclusion from one of the most dovish regional Federal Reserve banks was rather surprising: The economy may actually need much smaller monthly job growth, of around 80,000 or less, in coming years in order for the jobless rate to keep moving lower. The immediate policy implication, it might seem, is that the U.S. central bank may have to tighten monetary policy much sooner than previously thought.

Andrew Brenner of National Alliance remarked that, while the report should be taken with a grain of salt, “this translates to lowering the bar to QE tapering.”

Right? Not necessarily, writes Goldman Sachs economist Jan Hatzius. Here’s why:

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.

Forecasters more accurate on U.S. payrolls: perhaps a good sign

Financial and economic forecasters have long been the punching bag of punters and traders for making spectacularly wrong calls. But a clutch of economists looked exceptionally good on Friday. Nine of them, or about 10 percent of the latest Reuters Polls sample on U.S. non-farm payrolls, got the net number of new jobs created in May exactly right at 175,000. And a whole lot of them came very close.

For a survey of companies conducted by the Bureau of Labor Statistics that itself has a margin of error of plus or minus 100,000 this is no small achievement – or stroke of luck.

But it may also be a good sign that jobs growth is getting more steady, a much more stable target to try and pin down each month. The range of forecasts provided – from 125,000 jobs to 210,000 – was also the narrowest so far this year.

MacroScope presents: ask the economist

MacroScope is pleased to announce the launch of ‘Ask the Economist,’ which will give our readers an opportunity to directly ask questions of top experts in the field. We are honored that Michael Bryan, senior economist at the Federal Reserve Bank of Atlanta, has agreed to be our first guest. In his role, Bryan is responsible for organizing the Atlanta Fed’s monetary policy process. He was previously a vice president of research at the Cleveland Fed.

The process is simple. We give you a heads up on our upcoming featured economist. You tweet us your question using the hashtag #asktheeconomist, or via direct message if you prefer. We select a handful of the most interesting queries this week, ship them over to our economist du jour. She or he will then answer each one in writing and we will post their response as a blogpost. And of course, you’ll be cited for asking the pithy question.

We look forward to your questions and thank you in advance for participating.

Let the games begin.

France under the spotlight

An IMF team will conclude its annual review of the French economy and hold a news conference this morning.

It’s a safe bet that the Fund’s prescription will be similar to that of the EU and most other interested observers – the two extra years France has been given by Brussels to meet its debt-cutting targets must be used to liberalise and reform its economic structures. That was certainly Angela Merkel’s message to President Francois Hollande last week and also implicit in the Franco-German position paper which is intended to lay the ground for an EU summit at the end of the month.

The paper apparently contained a string of concessions from Germany – such as accepting a full-time president of the Eurogroup of euro zone finance ministers and paving the way for the next stage of a European banking union by accepting a “resolution board” to deal with restructuring or winding up failed banks, although that would be based on national authorities not the central body advocated by the European Commission and European Central Bank.

Although it seems routine, rising euro zone unemployment is still shocking

 

Another month, another rise in the number of jobless in the euro zone.

As expected, the unemployment rate hit a new record 12.2 percent in April, according to Eurostat on Friday, meaning some 19,375,000 euro zone citizens are out of work.

That’s more than the populations of Austria and Belgium combined and almost a quarter are aged under-25.

However, it’s worth remembering that not so long ago, hardly any economists expected to see unemployment climb to these levels.