The March US nonfarm payrolls number was slightly disappointing as economists had forecast a higher reading although revised estimates for February came in better than expected.
However, Randall Kroszner, a professor of economics at the Chicago University’s Booth School and a former Federal Reserve governor, thinks the latest number is pretty much right on target since the job creation rate has been about 200,000 per month for about the last 12 months. There has been an uptick in the work-week after the tick-down in the previous two months, which indicates things are pretty much on track for the Fed’s forecast, he noted.
Asked if the weak wage growth-rate is a matter of concern since it indicates the hiring rate is yet to pick up, Randy said the economy is creating a reasonable number of jobs though it may not be as strong as the Fed would like to see. However, the decline in nominal and real income growth will keep the wage pressure down, allowing the Fed to keep rates low for longer, he observed.
Asked if he agreed with Chicago Fed President Charles Evans’ observation that it’s premature to rate hikes now since the economy is witnessing disinflation, Randy said inflation is floundering because there’s a slack in the labor market.
When labor supply exceeds demand, wages go down, which in turn affects consumption, other things being equal. The economy is yet to witness a robust recovery where typically one witnesses more employment, tighter labor conditions and some growth. That is one of the reasons why the Fed has chosen to discard the 6.5 percent unemployment threshold because, even though the jobless rate is close to the 6.5 percent mark, it’s really not a robust labor market, he argued.
Asked if he agreed with Charlie Evans’ assessment that rate hikes will take place in the second-half of 2015 or later, Randy said it’s very clear from the last FOMC minutes and Janet Yellen’s speech that the assets purchase program will end by the end this year and it’ll be at least six months before they take the next step, he concluded.
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