Anyone hoping that this morning’s employment report would send a clear message to the markets and the Fed about the timing of a rate increase was sorely disappointed. There is virtually no change from last month, even to the second decimal place on some lines. The charts show the unemployment rate — unchanged — and the rise in payrolls — a touch weaker — than in June. One positive note, average hourly earnings rose 2.4% from July 2014, a bit stronger than last time. (from The Employment Situation Report, 8-7-15.) Click on chart for larger image.
Debate over whether the Fed will, or should, raise the Fed funds target centers around inflation, jobs and GDP. Taken together these don’t make an clear case for higher interest rates. Unemployment is down, job growth is good but there could still be some slack in the labor markets given the lower participation rate. Inflation is still below the Fed’s target although it is closer than a year ago. GDP growth is not all that impressive. All these miss one point: the Fed would like to take real steps towards normal monetary policy and begin shrinking its balance sheet. With favorable economic conditions, this may be time to move forward.
The odds for a Fed move in September remain a bit better than 50-50. but we will have to wait for the next employment report on Friday September 4th for a better guess.
This article was written by David Blitzer, chairman of the index committee, S&P Dow Jones Indices.
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