Combating Economic Indicators Poses A Challenge To Fed's Policy Makers:World Forex Brokers, Posted on February 06, 2016
The complexity between the enhancing wellbeing of the work market and the shortcoming of other financial pointers represents a testing pickle for the Federal Reserve.
Yellen, the Fed’s chairwoman, and other officials have said the Fed must raise its benchmark interest rate as job growth continues to prevent higher inflation down the road. The strength of the January jobs report — including faster wage growth — suggests the Fed’s policy-making committee still could raise rates as soon at its next meeting in March.
But the Fed would be betting on a theory. Inflation remains low, growth has slowed and the impact of global economic problems and financial market volatility is unclear. If the Fed presses ahead, it could undermine the economy just as things are getting good for the vast majority of Americans.
The Fed raised its benchmark rate in December for the first time since the financial crisis. It had held rates near zero for seven years to encourage borrowing and risk-taking. Ms. Yellen, speaking after the announcement, said the Fed planned to raise rates gradually, reducing those incentives because the economy no longer needed quite as much help.
She will speak publicly for the first time since then on Wednesday when she testifies before the House Financial Services Committee. In the intervening two months, the economic outlook has deteriorated. Financial conditions have tightened and the dollar has gained strength, weighing on American exporters and delaying any rebound in inflation.
The January jobs report, however, reflects considerable strength in other parts of the economy. Stronger wage growth is particularly likely to grab the Fed’s attention, suggesting that employers are finally being forced to compete for workers by raising pay. In a high-profile example, Walmart, the nation’s largest private employer, has said that it plans to increase hourly pay rates for most of its employees later this month.
The Fed is less likely to worry about the slower pace of job creation in January, as officials have predicted that slower population growth would weigh on job creation. In keeping with those expectations, the unemployment rate still fell to 4.9 percent.
One reason the Fed is focused on job growth is that it may be a more accurate reflection of the strength of the underlying economy. In the fourth quarter of 2015, for example, the government estimated the economy added 279,000 jobs a month, but that output increased at a rate of just 0.7 percent.
this week that the Fed should continue the gradual adjustment of moving rates higher to keep them aligned with economic activity and inflation.
She also played down concerns about the economic impact of recent market volatility. While taking a signal from such volatility is warranted, she said, monetary policy cannot respond to every blip in financial markets.
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