The Reuters headline says it all: U.S. hiring scene pointing to economy in need of Fed’s help.
I can almost hear the Beach Boys’ Al Jardine: “Help me, Benny! Help, help me, Benny!”
U.S. employers likely stepped up hiring only slightly in May, a sign the economy was growing modestly but not strongly enough to convince the Federal Reserve to scale back the amount of cash it is pumping into the banking system.
The economy probably added 170,000 jobs in May. It was the third month in a row where job increases were under 200,000. “The labor market may not be as strong as we thought,” said Kevin Cummins, an economist at UBS in Stamford, Connecticut.
Excuse me? Not as strong as we thought? Who are “we”? Ben Bernanke says the FED must counterfeit an additional $85 billion a month, or a trillion dollars a year, until unemployment gets to 6.5%.
The report could heighten concerns government austerity enacted this year is sapping vigor from the economy, and might dampen speculation the Fed might soon trim bond purchases aimed at lowering interest rates and boosting employment.
This is FED-watching. The FED says, over and over, “6.5% or bust.” But FED-watchers look at every bit of data to see if we should trust the FED.
We should trust the FED . . . to do exactly as it says. It will inflate.
Officials at the U.S. central bank have intimated they could be close to tapering bond purchases despite modest economic growth which is not expected to pick up until late in the year when the sting from government spending cuts begins to fade.
I see. Unnamed officials have intimated. Reporters call FED officials and ask what they are intimating these days. “OK, but don’t mention my name.”
What has the FOMC actually said — the Federal Reserve committee that established monetary policy? This:
To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.
Keynesianism is not working. Neither are millions of Americans.
About 4.4 million Americans have been unemployed for more than six months, roughly three million more than pre-recession levels. The longer workers are out of a job, the greater the risk they become essentially unemployable. That could deal lasting damage to the economy and has lent urgency to the Fed’s efforts to stimulate growth.
Urgency? The FED has been in “urgent mode” for over four years.
Europe is in a recession. This is pushing down manufacturing growth. Only 3,000 jobs were added in May.
Then there is labor participation. It is at historic lows. “The labor force participation rate was 63.3 percent in April, holding at a 34-year low for the second straight month.”
All in all, it is bad news for Keynesians. But that does not faze them. They know what to do: call for more deficits and more Federal Reserve inflation. Paul Krugman has sounded the charge.