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  • Federal Open Market Committee Minutes Show Measured Positive Outlook

    The Federal Reserve has released the minutes from the Federal Open Market Committee 's March meetings, and they read as measured, but also somewhat optimistic that slow, steady improvement will continue. Here is a key excerpt: In their discussion of monetary policy in the period ahead, members agreed that there was sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, members decided that it would be appropriate to make a further measured reduction in the pace of its asset purchases at this meeting. Members again judged that, if the economy continued to develop as anticipated, the Committee would likely reduce the pace of asset purchases in further measured steps at future meetings. Members also underscored that the pace of asset purchases was not on a preset course and would remain contingent on the Committee's outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of purchases. Accordingly, the Committee agreed that, beginning in April, it would add to its holdings of agency mortgage-backed securities at a pace of $25 billion per month rather than $30 billion per month, and would add to its holdings of longer-term Treasury securities at a pace of $30 billion per month rather than $35 billion per month. While making a further measured reduction in its pace of purchases, the Committee emphasized that its holdings of longer-term securities were sizable and would still be increasing, which would promote a stronger economic recovery by maintaining downward pressure on longer-term interest rates, supporting mortgage markets, and helping to make broader financial conditions more accommodative. The Committee also reiterated that it would continue its asset purchases, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. One member, while concurring with this policy action, suggested that in future statements the Committee might provide further information about the trajectory of the Federal Reserve's balance sheet, including information about when the Committee might discontinue its policy of reinvesting principal payments on all agency debt and agency mortgage-backed securities in agency mortgage-backed securities. With respect to forward guidance about the federal funds rate, all members judged that, as the unemployment rate was likely to fall below 6-1/2 percent before long, it was appropriate to replace the existing quantitative thresholds at this meeting. Almost all members judged that the new language should be qualitative in nature and should indicate that, in determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee would assess progress, both realized and expected, toward its objectives of maximum employment and 2 percent inflation. However, a couple of members preferred to include language in the statement indicating that the Committee would keep rates low if projected inflation remained persistently below the Committee's 2 percent longer-run objective. One of these members argued that the Committee should continue to provide quantitative thresholds for both the unemployment rate and inflation. Members also considered statement language that would provide information about the anticipated behavior of the federal funds rate once it is raised above its effective lower bound. The Committee decided that it was appropriate to add language indicating that the Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run. In discussing this addition, a couple of members suggested that language along these lines might better be introduced at a later meeting. However, another member indicated that adding the new language at this stage could be beneficial for the effectiveness of policy because financial conditions depend on both the length of time that the federal funds rate is at the effective lower bound and on the expected path that the federal funds rate will follow once policy firming begins. It was also noted that the postmeeting statements, rather than the SEP, provide the public with information on the Committee's monetary policy decisions and that it was therefore appropriate for the postmeeting statement to convey the Committee's position on the likely future behavior of the federal funds rate. You can read the minutes here . Wall Street Journal reporter Victoria McGrane was looking forward to seeing the minutes after Fed officials seemed to reveal concern...
  • Unemployment Rate Stays at 6.7% as Employment, Labor Force Increase

    The U.S. economy added 192,000 jobs in March, according to the Department of Labor . There was a slight increase in the labor force participation, as it rose 0.2% to 63.2%. The headline number--the unemployment rate--stayed at 6.7%. Here's a look at the unemployment trends from the Bureau of Labor Statistics : Here are some of the key data from other areas we like to track in the monthly jobs report: The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed at 7.4 million in March. These individuals were working part time because their hours had been cut back or because they were unable to find full-time work. In March, 2.2 million persons were marginally attached to the labor force, little changed from a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Among the marginally attached, there were 698,000 discouraged workers in March, down slightly from a year earlier. (These data are not seasonally adjusted.) Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The remaining 1.5 million persons marginally attached to the labor force in March had not searched for work for reasons such as school attendance or family responsibilities. Read the full report from the BLS here .
  • Brookings Paper on Long Term Unemployed

    Princeton economists Alan B. Krueger , Judd Cramer , and David Cho have released a new paper for the Brookings Institution in which they look at "plausibility of a unified explanation for the recent shifts in the price and real wage Phillips Curves and Beveridge Curve in the U.S." In other words, they study the long term unemployment problem. Their findings lead them to calling long term unemployed workers "unlucky." From the conclusion: Although the long-term unemployed have about a one in ten chance of moving into employment in any given month, when they do return to work their new jobs are often transitory. After 15 months, the long-term unemployed are more than twice as likely to have withdrawn from the labor force than to have settled into steady, full-time employment. And when they exit the labor force, the long-term unemployed tend to say that they no longer want a job, suggesting that many labor force exits could be enduring. The subset of the long-term unemployed who do regain employment tend to return to jobs in the same occupations and industries from which they were displaced, suggesting that significant challenges exist for helping the long-term unemployed to transition to growing sectors of the economy. A stronger macroeconomy helps the long-term unemployed in part because it raises demand in their previous sectors. But even in good times, the long-term unemployed are often on the margins of the labor market, with diminished employment prospects and relatively high labor force withdrawal rates. The portrait of the long-term unemployed in the U.S. that emerges here suggests that, to a considerable extent, they are an unlucky subset of the unemployed. Their diverse and varied set of characteristics implies that a broad array of policies will be needed to substantially lower the long-term unemployment rate and stem labor force withdrawal, as concentrating on any single occupation, industry, demographic group or region is unlikely to have a substantial impact reducing long-term unemployment by itself. Understanding the labor market and personal hurdles faced by the long-term unemployed should be a priority for future research in order to craft solutions to reduce long-term unemployment. Read the paper here . And watch Justin Wolfers discuss the paper in this video:
  • Pew: Americans Remain Bearish About the Economy

    Americans don't seem to be letting traditional economic indicators get in the way of their feelings about the economy. Andrew Kohut --Founding Director of the Pew Research Center --looks at some of the latest survey data he and his team has gathered, and calls citizens' "bearish" views of the economy as a big puzzle. As the new year began, the Associated Press summed up the optimistic outlook of experts succinctly: “Consumers will spend more. Government will cut less. Business will invest more. And more companies will hire.” In that regard, the Bureau of Labor Statistics first report of the year showed that the unemployment rate fell to a five-year low of 6.7 percent, and essentially remained at that level in February. But even so, much of the American public is still not over the Great Recession. And the factors that drive economic pessimism are not easily mitigated. Surveys show that a complex combination of partisanship and widening socio-economic gaps are in play, undermining chances of an improvement in the public mood any time soon. At the outset of what appeared to be a brightening economic climate, the Pew Research Center’s January national survey found just 16% of the public rating the national economy as excellent or good while a whopping 83% rated it as only fair or poor. This is little different than a year earlier when the survey found 12% giving the economy a positive rating and 86% rating it negatively. In fact, this is only modestly better than at any point since the onset of the Great Recession. The same pattern is seen in how Americans size up their personal finances. While Americans have a better opinion of their own finances than of the national economy, ratings of personal financial well-being remain well below what they were pre-recession. In 2007, and for much of the decade before it, about half of Americans rated their finances as excellent or good. Today, just 39% do. While there is a significant split on Americans' views about the economy based on political party affiliation, the split on personal finance issues is based on what Pew terms an education gap: Read the full article here .
  • Not Much Change in the Monthly Jobs Report

    The U.S. economy added 175,000 jobs in February, according to the Department of Labor . The unemployment rate rose slightly to 6.7% (from 6.6% last month). The labor force participation was level at 63.0%. Here's a look at the unemployment trends from the Bureau of Labor Statistics : Here are some of the key data from other areas we like to track in the monthly jobs report: The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed at 7.2 million in February. These individuals were working part time because their hours had been cut back or because they were unable to find full-time work. In February, 2.3 million persons were marginally attached to the labor force, a decline of 285,000 over the year. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Among the marginally attached, there were 755,000 discouraged workers in February, down by 130,000 from a year earlier. (The data are not seasonally adjusted.) Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The remaining 1.5 million persons marginally attached to the labor force in February had not searched for work for reasons such as school attendance or family responsibilities. Read the full report from the BLS here .
  • Unemployment Picture in Europe Stable but Bleak

    The number of unemployed men and women across Europe, as estimated by Eurostat , increased by about 17,000 in January. The unemployment rate is now at 10.8% across the EU 28 (compared to 10.7% in December) and 12.0 % in the euro area (11.9% in December). Austria and Germany are the only members states to be at 5.0% unemployment or less. The unemployment rate in Greece and Spain remains above 25%. And while there was some improvement for workers under 25, jobs remain particularly hard to come by for young workers. From the report: In January 2014, 5.556 million young persons (under 25) were unemployed in the EU28, of whom 3.539 million were in the euro area. Compared with January 2013, youth unemployment decreased by 171 000 in the EU28 and by 87 000 in the euro area. In January 2014, the youth unemployment rate5 was 23.4% in the EU28 and 24.0% in the euro area, compared with 23.7% and 24.1% respectively in January 2013. In January 2014, the lowest rates were observed in Germany (7.6%), Austria (10.5%) and the Netherlands (11.1%), and the highest in Greece (59.0% in November 2013), Spain (54.6%) and Croatia (49.8% in the fourth quarter of 2013). Read the full report here .
  • Lagarde: Three Reform Steps for Spain (and Europe)

    Christine Lagarde was in Bilbao, Spain this morning to discuss the state of the economy in Europe in general, and Spain in particular. The IMF managing director noted that there are encouraging signs of growth across the EU. But the big challenge remains the high unemployment rates in member nations. Spain, of course, is the poster child for the jobs problem. Lagarde: I am here reminded by President Rajoy who said: “Spain is out of recession but not out of the crisis….The task now is to achieve a vigorous recovery that allows us to create jobs." I fully agree—creating jobs must be the overriding focus for Spain. What does this mean in practical terms? It means there can be no let-up in the reform momentum. The strong reform momentum must be maintained. And we can see three key areas where further progress will be crucial. The first area is labor market reforms—which need to be deepened so that they can work for all. Both firms and their workers need to be assured that they can reach appropriate agreements on working conditions and wages. This is essential for jobs to be protected and created. Workers need to be directly supported as well—through enhanced skills training and job-search assistance for the unemployed. And by further cutting the tax costs of employing people, especially the low-paid, the unemployed would face fewer barriers in finding work. The second area concerns debt—which needs to be lowered. For firms, this means helping insolvent but viable ones restructure their debts, so they can stay in business and continue to invest and hire people. For the government, it means continuing to reduce the fiscal deficit in a gradual, growth-friendly way—especially by relying more on indirect taxes. The third and final area is the business environment—which needs to be strengthened. Making it easier for businesses to start up and grow will lift their capacity to create employment. Making domestic firms more competitive will also boost their employment and productivity. The government’s plans to liberalize professional services and promote free trade among Spain’s regions go very much in this direction. Read the full speech here .
  • MThink Infographic: Global Risks

    We highlighted the World Economic Forum's 2014 Global Risk Report last month . Now the team at Mercer's MThink have put out an infographic that shares the reports highlights in a new way. Take a look (go to the full-size image at MThink here ):
  • Federal Open Market Committee Policy Action From the January Meeting Minutes

    The Federal Reserve released the minutes from the January Federal Open Market Committee meeting yesterday. While we already knew the big takeaway from the meeting-- the plan to the Fed's bond-buying quantitative easing program by roughly $10 billion --the minutes allow bankers, investors, and policymakers around the world to get a sharper view of the FOMC's collective thinking. Here are a few key paragraphs from the minutes on policy action: Committee members saw the information received over the intermeeting period as indicating that growth in economic activity had picked up in recent quarters. Labor market indicators were mixed but on balance showed further improvement. The unemployment rate had declined but remained elevated when judged against members' estimates of the longer-run normal rate of unemployment. Household spending and business fixed investment had advanced more quickly in recent months than earlier in 2013, while the recovery in the housing sector had slowed somewhat. Fiscal policy was restraining economic growth, although the extent of the restraint had diminished. The Committee expected that, with appropriate policy accommodation, the economy would expand at a moderate pace and the unemployment rate would gradually decline toward levels consistent with the dual mandate. Moreover, members continued to judge that the risks to the outlook for the economy and the labor market had become more nearly balanced. Inflation was running below the Committee's longer-run objective, and this was seen as posing possible risks to economic performance, but members anticipated that stable inflation expectations and strengthening economic activity would, over time, return inflation to the Committee's 2 percent objective. However, in light of their concerns about the persistence of low inflation, many members saw a need for the Committee to monitor inflation developments carefully for evidence that inflation was moving back toward its longer-run objective. In their discussion of monetary policy in the period ahead, all members agreed that the cumulative improvement in labor market conditions and the likelihood of continuing improvement indicated that it would be appropriate to make a further measured reduction in the pace of its asset purchases at this meeting. Members again judged that, if the economy continued to develop as anticipated, further reductions would be undertaken in measured steps. Members also underscored that the pace of asset purchases was not on a preset course and would remain contingent on the Committee's outlook for the labor market and inflation as well as its assessment of the efficacy and costs of purchases. Accordingly, the Committee agreed that, beginning in February, it would add to its holdings of agency mortgage-backed securities at a pace of $30 billion per month rather than $35 billion per month, and would add to its holdings of longer-term Treasury securities at a pace of $35 billion per month rather than $40 billion per month. While making a further measured reduction in its pace of purchases, the Committee emphasized that its holdings of longer-term securities were sizable and would still be increasing, which would promote a stronger economic recovery by maintaining downward pressure on longer-term interest rates, supporting mortgage markets, and helping to make broader financial conditions more accommodative. The Committee also reiterated that it would continue its asset purchases, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. In considering forward guidance about the target federal funds rate, all members agreed to retain the thresholds-based language employed in recent statements. In addition, the Committee decided to repeat the qualitative guidance, introduced in December, clarifying that a range of labor market indicators would be used when assessing the appropriate stance of policy once the unemployment rate threshold had been crossed. Members also agreed to reiterate language indicating the Committee's anticipation, based on its current assessment of additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments, that it would be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee's longer-run objective. Read the full release here .
  • Treasury Secretary Lew on the "End" of Too Big to Fail

    Treasury Secretary Jacob Lew is feeling good about the economy. In an interview with Charlie Rose last night, Lew expressed optimism that growth will pick up in 2014, and though he tended to remain cautious about his predictions, he suggested that our elected officials in Washington are making progress in economic policy around debt and immigration. Rose and Lew covered a lot of ground--from domestic issues to emerging markets and China. In this excerpt, Lew argued that banking rules are significantly stronger now than they were six years ago: We will post the full video when it becomes available. See also: Damian Paletta 's "12 Takeaways" from the interview at the Wall Street Journal Washington Wire blog, here .
  • Yellen Stays the Course in First Congressional Hearing as Chair of the Fed

    Congress welcomed Janet Yellen to her new post as Chair of the Federal Reserve yesterday by asking her to spend six hours with them in an extended hearing on the state of the U.S. economy. Yellen did not give any signs that she will turn sharply from any Fed positions held by her predecessor, Ben Bernanke. The Fed will continue to aim to ease out of some of its quantitative easing as long as the labor market shows improvement. Here are a few key excerpts from her testimony. On the state of the economy : My colleagues on the FOMC and I anticipate that economic activity and employment will expand at a moderate pace this year and next, the unemployment rate will continue to decline toward its longer-run sustainable level, and inflation will move back toward 2 percent over coming years. We have been watching closely the recent volatility in global financial markets. Our sense is that at this stage these developments do not pose a substantial risk to the U.S. economic outlook. We will, of course, continue to monitor the situation. On monetary policy : Our current program of asset purchases began in September 2012 amid signs that the recovery was weakening and progress in the labor market had slowed. The Committee said that it would continue the program until there was a substantial improvement in the outlook for the labor market in a context of price stability. In mid-2013, the Committee indicated that if progress toward its objectives continued as expected, a moderation in the monthly pace of purchases would likely become appropriate later in the year. In December, the Committee judged that the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions warranted a modest reduction in the pace of purchases, from $45 billion to $40 billion per month of longer-term Treasury securities and from $40 billion to $35 billion per month of agency mortgage-backed securities. At its January meeting, the Committee decided to make additional reductions of the same magnitude. If incoming information broadly supports the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. That said, purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on its outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases. on strengthening the financial system : Regulatory and supervisory actions, including those that are leading to substantial increases in capital and liquidity in the banking sector, are making our financial system more resilient. Still, important tasks lie ahead. In the near term, we expect to finalize the rules implementing enhanced prudential standards mandated by section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. We also are working to finalize the proposed rule strengthening the leverage ratio standards for U.S.-based, systemically important global banks. We expect to issue proposals for a risk-based capital surcharge for those banks as well as for a long-term debt requirement to help ensure that these organizations can be resolved. In addition, we are working to advance proposals on margins for noncleared derivatives, consistent with a new global framework, and are evaluating possible measures to address financial stability risks associated with short-term wholesale funding. We will continue to monitor for emerging risks, including watching carefully to see if the regulatory reforms work as intended. Read the full speech here .
  • BLS Jobs Report: Unemployment Rate Down to 6.6% as Economy Adds 113,000 Jobs

    The U.S. economy added 113,000 jobs in January, and the civilian labor force rose by nearly half a million (499,000) as the number of lon-term-unemployed declined and the labor force participation rate edged up, according to the Department of Labor . The unemployment rate dropped to 6.6% (from 6.7%). The labor force participation rate is back up to 63.0%. Here's a look at the unemployment trends from the Bureau of Labor Statistics : Here are some of the key data from other areas we like to track in the monthly jobs report: The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) fell by 514,000 to 7.3 million in January. These individuals were working part time because their hours had been cut back or because they were unable to find full-time work. In January, 2.6 million persons were marginally attached to the labor force, little changed from a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Among the marginally attached, there were 837,000 discouraged workers in January, about unchanged from a year earlier. Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The remaining 1.8 million persons marginally attached to the labor force in January had not searched for work for reasons such as school attendance or family responsibilities. Read the full report from the BLS here .
  • Labor Force Participation, Women Workers, and Understanding the Gap Between Unemployment Rates in the U.S. and E.U.

    When the Labor Department releases the latest monthly employment figures tomorrow, the official unemployment rate will remain well below that of Europe . Thomas Klitgaard and Richard Peck of the New York Fed warn us not to assume the employment situation in the U.S. is so much better than in the euro area, just because a comparison of the unemployment rate looks like this: Klitgaard and Peck remind us once again of the importance of labor force participation. While participation in the U.S. has been plummeting, the same has not been true in the euro area: Had labor force participation in the euro area dropped at the same rate as the U.S., Klitgaard and Peck estimate unemployment there would be at about 9.5%--"below where it was at the beginning of the sovereign debt crisis." And they point to a particular segment of the population keeping the overall labor force participation rate up: women over 45. A breakdown of labor force participation by gender in the chart below illustrates the source of the divergence. Rates for men are plotted with dotted lines, and rates for women are plotted with solid lines. Euro area women are the outliers. Their labor force participation rate is about 2 percent above the 2010 level, unlike the rates for American men and women which have all declined and the rate for euro area men which has been relatively flat. Read Comparing U.S. and Euro Area Unemployment Rates here .
  • Feldstein on Steadily Improving Standard of Living

    Looking for some cheery economic analysis? Then Martin Feldstein is your man. Stop fretting over the slow rate of growth. Looking beyond 2014, Feldstein makes the case that slow, steady growth will bring significant improvement in the standard of living. From Project Syndicate : The Congressional Budget Office (CBO) projects that real per capita GDP growth will slow from an annual rate of 2.1% in the 40 years before the start of the recent recession to just 1.6% between 2023 and 2088. The primary reason for the projected slowdown is the decrease in employment relative to the population, which reflects the aging of American society, a lower birth rate, and a decelerating rise in women’s participation in the labor force. While the number of persons working increased by 1.6% per year, on average, from 1970 to 2010, the CBO forecasts that the rate of annual employment growth will fall to just 0.4% in the coming decades. A drop in annual growth of real per capita GDP from 2.1% to 1.6% looks like a substantial decline. But even if these figures are taken at face value as an indication of future living standards, they do not support the common worry that the children of today’s generation will not be as well off as their parents. An annual per capita growth rate of 1.6% means that a child born today will have a real income that, on average, is 60% higher at age 30 than his or her parents had at the same age. Of course, not everyone will experience the average rate of growth. Some will outperform the average 60% rise over the next three decades, and some will not reach that level. But a 30-year-old in 2044 who experiences only half the average growth rate will still have a real income that is nearly 30% higher than the average in 2014. But things are even better than those numbers imply. Although government statisticians do their best to gauge the rise in real GDP through time, there are two problems that are very difficult to overcome in measuring real incomes: increases in the quality of goods and services, and the introduction of new ones. I believe that both of these problems cause the official measure of real GDP growth to understate the true growth of the standard of living that real GDP is supposed to indicate. Read The Future of American Growth here .
  • Unemployment in Euro Zone Remains Flat

    The number of unemployed men and women across Europe, as estimated by Eurostat , was at 26.2 million in December. That works out to an unemployment rate across the EU28 of 10.7%. Technically that is an improvement from November, when the rate was 10.8%. But it signals that employment has been flat for a few months now. In the euro area, the unemployment rate was 12.0%, down from 12.1% in November. In December 2012, the unemployment across the euro area was 11.9%, and it was 10.8% in the EU28. From the report: Among the Member States, the lowest unemployment rates were recorded in Austria (4.9%), Germany (5.1%) and Luxembourg (6.2%), and the highest in Greece (27.8% in October 2013) and Spain (25.8%). Compared with a year ago, the unemployment rate increased in fourteen Member States, fell in thirteen and remained stable in Sweden. The highest increases were registered in Cyprus (13.9% to 17.5%), Greece (26.1% to 27.8% between October 2012 and October 2013), the Netherlands (5.8% to 7.0%) and Italy (11.5% to 12.7%) The largest decreases were observed in Ireland (14.0% to 12.1%), Latvia (14.0% to 12.1% between the third quarters of 2012 and 2013), Portugal (17.3% to 15.4%), Hungary (11.0% to 9.3% between November 2012 and November 2013) and Lithuania (13.0% to 11.4%). Read the full report here .
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