May 24, 2017

Soft Jobs Data Not Expected to Deter Fed

The Labor Department’s snapshot of the job market in August had several discouraging details underneath a relatively mundane headline number, which showed the economy added an estimated 169,000 jobs. Perhaps the most striking was a plunge in the share of Americans who are either working or looking for work, which fell to its lowest level since 1978.

“If you had a more optimistic view of the economy, which I think the Fed does, this should give you some pause,” said Joshua Shapiro, chief United States economist at MFR. “It’s been a real struggle here in the labor market.”

At the same time, earlier estimates of job growth in July and June were revised sharply downward, and hiring over the summer months was largely driven by low-wage sectors like retail, food services and health care.

Still, economists said they believed that Fed governors would find enough bright spots in this report to justify scaling back their monthly purchases of long-term Treasury bonds and mortgage-backed securities — measures that help push down long-term interest rates — after their next meeting on Sept. 17 and 18.

“There’s just barely enough in that report and in other forward-looking indicators we’ve seen to give Fed governors the confidence they need on the 18th to taper,” said Ian Shepherdson, the chief economist at Pantheon Macroeconomics.

“For the record, I don’t think they should, given the risks posed by Syria and the impending fiscal chaos in Washington,” he said, noting the expected Congressional battles over the debt limit and spending measures. “The costs of delaying until some of those factors are sorted out is not very great. But the Fed has given no indication it’s thinking that way.”

Investors seemed to agree, with bond yields dipping slightly after the jobs report came out. As for stocks, after a topsy-turvy day, the Standard Poor’s 500-stock index and the Dow Jones industrial average both closed about where they began on Friday. In Friday trading, the Dow closed down 14.98 points, or 0.1 percent, at 14,992. The S. P. 500 edged up 0.09 points, or 0.01 percent, closing at 1,655.17. The Nasdaq climbed a slight 1.23 points, or 0.03 percent, to finish at 3,660.01. The price on a 10-year Treasury note rose 16/32, to
96 9/32, with the yield falling to 2.93 from 3.00 on Thursday. The number of payroll jobs added in August was just shy of the average pace of hiring over the last year, and the unemployment rate edged down to 7.3 percent from 7.4 percent. Unemployment, however, fell for the “wrong reasons,” Mr. Shapiro said: because people dropped out of the labor force and so were no longer counted as unemployed, and not because more unemployed people found jobs.

The jobless rate is now edging close to the 7 percent level that the Federal Reserve chairman, Ben S. Bernanke, had identified as the Fed’s target for ending its asset purchases altogether around the middle of next year. For several months, Fed governors have been saying that the Fed expected to begin reducing the monthly purchases “later this year,” which has been widely interpreted to point toward beginning the shift as early as September.

Charles L. Evans, president of the Federal Reserve Bank of Chicago and one of the more vocal proponents of highly accommodative monetary policy, used this phrasing in a speech on Friday, suggesting he was open-minded about the “exact pattern of the reduction in purchases that we eventually take.”

The Fed’s more hawkish members have been more explicit about their desired policy moves. Esther L. George, president of the Federal Reserve Bank of Kansas City and a leading critic of the asset purchases, said on Friday that the Fed should cut its bond buying to $70 billion a month in September, from the current $85 billion a month, split between Treasuries and mortgage bonds. “It is time to begin a gradual — and predictable — normalization of policy,” she said.

Some economists suggested that Fed governors could react to the latest economic data by tapering their bond purchases slowly over a longer period of time and perhaps in conjunction with other measures that would underscore the central bank’s commitment to helping the economy heal. For example, the Fed could announce that it is extending the period that it holds short-term interest rates near zero.

Binyamin Appelbaum contributed reporting.

This article has been revised to reflect the following correction:

Correction: September 6, 2013

An earlier version of this article referred incorrectly to members of the Federal Open Market Committee. Some members are presidents of regional Federal Reserve banks; they are not all members of the Board of Governors.

Article source: http://www.nytimes.com/2013/09/07/business/economy/us-economy-adds-169000-jobs-as-unemployment-rate-falls.html?partner=rss&emc=rss

Economix Blog: Behind Closed Doors at the Fed

You may have wondered what exactly happens when the Federal Open Market Committee meets every six weeks to make policy decisions for the Federal Reserve — like the two-day meeting that is wrapping up Wednesday. And you are in luck, because earlier this month, the Fed released transcripts of the committee’s meetings in 2006, Year One in the chairmanship of Ben S. Bernanke.

Mr. Bernanke has tried to inject new life into the meetings, which became a formality under his predecessor, Alan Greenspan, who wanted little more from the committee than ratification of the decisions he had already reached.

Mr. Bernanke, by contrast, has sought to restore a sense that the Fed’s decisions about monetary policy emerge from these discussions.

“I will take the liberty of intervening occasionally and raising a question or asking for a comment,” he said at his first meeting in March 2006.

He encouraged the others to do the same, inviting them to raise both hands to indicate that they wished ask a question or inject a comment.

They would call it a “two-handed intervention,” he said.

Some members laughed at the idea, and most did not attempt any such interventions during 2006, according to the transcripts. But a few embraced the concept, including Timothy F. Geithner, then president of the Federal Reserve Bank of New York, who on several occasions pressed colleagues to clarify apparent inconsistencies in their positions.

Mr. Bernanke himself, however, remained by far the most frequent interlocutor, often gently seeking to extract a little more information.

The basic structure has not changed in years. The committee sits around a large table on the second floor of the Fed’s imposing marble headquarters. There are 17 members: five Fed governors, including Mr. Bernanke, and 12 presidents of the Fed’s regional banks. Two seats on the Fed’s board of governors are vacant.

Senior staff members open the meeting with presentations about the health of financial markets and the broader economy, both domestic and foreign.

Committee members ask questions, then make their own presentations.

Another Fed staff member presents the options for monetary policy, and the committee members again ask questions and then offer their own views.

At the end of the discussion, the committee votes.

The chairman historically has controlled the outcome, and Mr. Bernanke’s softer style has not changed this basic reality. Like Mr. Greenspan, he still speaks after everyone else, summarizing their views before offering his own.

“Chairman Bernanke is highly effective at leading the meetings from the back,” Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, said in an interview earlier this month published in the bank’s employee newsletter. “The chairman is remarkable at distilling what people have said – he can take nearly two hours of talk about the economy and effectively summarize the essence of that discussion.”

After that summary, it is Mr. Bernanke who suggests what the committee should do, and what it should say in the statement released after each meeting.

“So that is my proposal,” he said at the end of that first meeting in March 2006. “If there is anyone who particularly would like to comment, here’s your chance.”

Article source: http://feeds.nytimes.com/click.phdo?i=4d95598f196047389d67a476bd91ca3c