Why the Economy Is Not Ready for an Interest Rate Increase

New York Times | AUG. 1, 2015 | THE EDITORIAL BOARD

[expat_panama]

The Federal Reserve talked up the economy last Wednesday, in a statement that emphasized improvements in employment, housing and consumer spending. Unfortunately, the optimism is misplaced.

On Thursday, the Commerce Department reported that from April through June, the economy grew at an annual rate of 2.3 percent — a modest pace, especially given the expectation of a bigger rebound from weather-related poor growth in the first quarter.

In 2014, for instance, when bad weather also reduced first-quarter growth, the economy grew at an annual pace well above 4 percent for the next two quarters. In comparison, the economy’s recent performance is not a rebound but rather a resumption of the sluggish growth that has long characterized the economy.

Given the depth of the recession that preceded the current recovery, growth in the 2-percent range has not been enough to pull up wages. That point was driven home on Friday, when the Labor Department reported a slowdown in wages and benefits in the second quarter. In a healthy economy, a more or less steady drop in the unemployment rate — as has occurred in the United States — would translate into rising wages and higher prices. Photo Janet L. Yellen, the Federal Reserve chairwoman. Credit Susan Walsh/Associated Press

If significant or sustained, such increases would be cause for the Fed to raise interest rates. But so far, no such increases have appeared, and, as a result, most working people have not yet recovered all of the lost ground from the recession or raised their living standards.

Fed policy makers know all that. A recent leak of documents...

[expat_panama]

The thing is that the health of America's economy is not the Fed's priority. Inflation is. If the Fed sees inflation then they'll raise rates and to hell w/ the economy. They've done it before and they'll do it again.

This is not a question of whether the Fed's being Mr. Niceguy or not, it's the fact that the Fed doesn't hire and raise wages but rather it's American people with money who do. Right now the left is in control and at war with Americans with money.

[4rcane]

The Fed lie to themselves with Fuzzy Numbers
https://www.youtube.com/watch?v=kpNt2JdCcFA

[expat_panama]

--and a lovely beautiful Monday-New-Month to all!  Futures see stocks off a bit (-0.13%) and metals off a bit more (-0.48).  Reports galore:

8:30 AM Personal Income
8:30 AM Personal Spending
8:30 AM PCE Prices - Core
10:00 AM ISM Index
10:00 AM Construction Spending
5:00 PM Auto Sales
5:00 PM Truck Sales

--and elsewhere in the news....

• Why Investors Shouldn't Worship Gold Now - Peter Hodson, National Post
• Job Evolution and the Rise of the Robots
• July Doesn't Jolt Markets Nick Mastrandrea - Market Tea Leaves - 1 hr 6 mins ago The markets traded lower on Friday with a neutral bias.  Will we see more of the same today or will the markets rebound?  Read on to learn more... (full story)

[abb]

XOM is an absolute screaming buy. You heard it here first.

[wastoute]

The Fed knows the Klown’s regime is lying about the economy. If the regime weren’t cooking the books the last 7 years would be clearly a Depression. The only “growth” in the economy has been feral gummint fueled with $trillions hocus pocused out of thin air.

[Flick Lives]

Interesting, and disturbing, video. I always knew government stats were a lie, I just never knew just how big a lie they have concocted over the decades.

[theBuckwheat]

The government is addicted to fiat money printing. In reality, it gains far more money to spend by directly and indirectly creating near-infinite levels of public and private debt than by printing Federal Reserve *Notes* (also debt instruments).

The problems with this are manifold. The one that is more important than any other is how it slowly destroys our liberty. This is because of two factors:

The simple factor is that as the amounts of interest required to service the debt balloons, government must ensure that no person who has anything to tax can escape its enforcement activities. Worse, we are enslaving our yet unaborted children into debt slavery.

The more pressing factor is that the first limit on government used to be the limits on money it could spend. There was only so much money in the till at any one time to spend on staff members, and people to investigate and enforce federal laws. There were only so many bureaucrats who could be put to work to devise new regulations (each having the effect of law). And so on.

But when government gives itself the power to create near-infinite amounts of money, it can use that money to buy near-infinite levels of bureaucracy. This is how the bureaucracy can dream up new rules and then send forth an army of auditors and enforcers. This is how government can even entertain staging showcase displays of power like the SWAT raid of Gibson Guitar over the legality of how imported wood was harvested and processed. This is how government thinks it is necessary to throw someone in jail (at over $26k/year) over the crime of importing seafood in Styrofoam where the law requires cardboard.

For the sake of our own liberty and the liberty of our yet unaborted grandchildren we must stop the federal government from creating more money than we are willing to pay in taxes. For that reason, when the states call an Article V convention to consider amendments to the Constitution, the first order of business is to revoke government’s self-authority to create near-infinite money.

[Alberta's Child]

Keeping employment levels high and inflation low are the two key mandates for the Fed. The most important line of this article is right here:

In a healthy economy, a more or less steady drop in the unemployment rate -- as has occurred in the United States -- would translate into rising wages and higher prices.

For one thing, this demonstrates that the drop in the unemployment rate is illusionary at worst, and irrelevant at best. The unemployment rate is computed based on the size of the U.S. work force ... and with work force participation at low levels not seen in decades, a metric like the calculated unemployment rate is of limited value.

More importantly, this also explains why wages have been stagnant for so long. Historically, wages rise when employers have to compete for a limited supply of labor. But this is not the case in the U.S. right now, and it may not be the case for a long time (if ever). With such a low labor participation rate, U.S. workers aren't just competing with other workers. They are also forced to compete with non-existent workers who are outside the work force right now. If wages increase, labor participation will increase as well ... which will only suppress wages in short time.

[Iron Munro]

Because the government still wants to use our money for free?

[Georgia Girl 2]

Wait 3 weeks and that 2.3% will be downgraded just like they do every quarter. Look for .50 or something.

[VTenigma]

[The Fed knows the Klown’s regime is lying about the economy. If the regime weren’t cooking the books the last 7 years would be clearly a Depression. The only “growth” in the economy has been feral gummint fueled with $trillions hocus pocused out of thin air.]

This + 1. 2014 claimed economic growth 2.4% GDP. Entitlement growth over 2013 4.2% GDP = -2.2% growth GDP, severe depression territory.

[expat_panama]

XOM may be going in to better times but for now there’s not many convincing reasons to plan that way (imho). Of course, this can change fast enough especially w/ the volatile energy sector.

[Jumper]

There is also the calculated risk that making money with interest rates is a throwback to the days when someone other than the Federal Reserve Printed Currency.... Imagine the government making even more money without raising taxes or the threat during a presidential election cycle.

[expat_panama]

...employment levels high and inflation low are the two key mandates...

--at least according to the Fed and when pressed they say the only way they can help jobs is with stable prices.  The so-called 'twin mandates' came out of legislation back in the '70's that sent the Fed a huge wish list of things (including evem having a 'trade-surplus' !?!) to blame on the Fed so Congress could evade responsibility for the messes they created.  

Seems to have worked, but the reality remains that the Fed doesn't do jobs becuase it can't do jobs.  It does prices pretty good tho so folks that know what's going on don't complain much..

[expat_panama]

I always knew government stats were a lie,

--and as Mark Twain said, "it ain't what you don't know that can hurt you but it's those things you know for sure that ain't so that can kill you."  Sure, bureaucrats can and do lie sometimes what so do pundits.  Two things that are worse about the pundits; one is they never have to show their work so you can't disprove 'em, and second is that they build up a mob that just looooves being real 'disturbed' all the time and they insist that the pundits must be assumed to be right until proven false.

Shadowstats in general and that video in particular are good examples of bad examples.

[Lorianne]

What?
The New York Times is part of the status quo cabal who are constantly telling everyone the economy is doing GRRReat!

Of course now it suits their status quo cabalism to say, keep on printing/borrowing money!

[citizen]

IOW the Fed has been co-opted into another fascist tool. A powerful one.

The really insidious thing about this is like what happens following most all the left’s social and economic tinkering.
Conservatives take over and try to move the economy toward better health but in doing so the patient (economy) actually seems to falter even worse. There is most always a lag time between policy enactments and when benefits can be felt.

So...Liberals generally goose the economy via unhealthy stimuli and garner media praise for the faux benefits. Conservatives then usually implement the castor oils of economic fixes and are blamed (by the same media) for their efforts to right the economic ship.