To be sure, there still are some pockets of slack in the labor force, as well as areas where technological disruptions are causing stresses for workers. But the Fed’s monetary policy rate tools are unlikely to be of use to address these problems. Fiscal policies are needed there. In the meantime, the curve above shows a labor market at a high vacancy-low unemployment level typically associated with economic expansions, meaning the Fed’s dual mandate has been achieved without a doubt.
The economy’s relative strength, meanwhile, can also be seen in many other areas such as the household net-worth-to-debt ratio, which today resides near previous peak levels, as Bloomberg data shows.
Looking forward, the U.S. economy should maintain a durable (yet modest) growth trajectory for years to come. Consumption should be helped by the tailwind of lower oil prices and by persistently solid jobs growth, as well as by the aggregate income gain that accompanies these new jobs. Further, it’s likely that average levels of wage growth will begin to improve from here, as labor market slack dissipates.
In short, I believe focusing on international developments that the U.S. economy can handle well is misguided. I’ve called for the Fed to move for a long time, and I continue to believe that the U.S. economy will likely weather a rate regime change well and over time may even benefit from a modestly higher (and more normal) rates. Until then, one has to wonder whether the Fed may be missing its window of opportunity for normalizing rates.
Rick Rieder, Managing Director, is BlackRock’s Chief Investment Officer of Fundamental Fixed Income, Co-head of Americas Fixed Income, and is a regular contributor to The Blog.