Monday, July 13, 2015

Yellen Still Sees Slack in Labor Market (excerpt)

Was it a coincidence? The S&P 500 rose 1.2% on Friday to 2076. Fed Chair Janet Yellen spoke about the economy and monetary policy the same day. Previously, I’ve observed that whenever she does so, stock prices tend to be up that day. Of course, investors were also relieved to see that China’s stock market rallied and Greece might still get a bailout. In any event, Yellen will be speaking again on July 15 and July 16 in her semiannual testimony to Congress on monetary policy.

In her speech on Friday, she made headlines saying, “Based on my outlook, I expect that it will be appropriate at some point later this year to take the first step to raise the federal funds rate and thus begin normalizing monetary policy.” So one-and-done is still the most likely scenario for Fed policy this year. If so, then the next hot topic will be when might the second rate hike occur next year and how many more rate hikes might there be. Yellen’s comments suggested that rate hikes are likely to be small, few, and far between in 2016.

Yellen is a labor economist by background, and it shows. She just isn’t convinced that the labor market has improved as much as suggested by numerous upbeat indicators, including the official unemployment rate, payroll employment, and job openings. She said: “But it is my judgment that the lower level of the unemployment rate today probably does not fully capture the extent of slack remaining in the labor market--in other words, how far away we are from a full-employment economy.”

Today's Morning Briefing: Bull in a China Shop. (1) Best-laid plans of mice and men, and central planners. (2) Central bankers are central planners too. (3) Pain in China’s master plans. (4) Government cheerleaders held pep rallies to rally stocks. (5) The biggest winner and loser in China. (6) “Silk Road” has a slippery slope. (7) Falling PPI and auto sales. (8) Command economies don’t do markets very well. (9) Xi’s dream turning into a nightmare. (10) Obamacare is a nightmare. (11) Yellen does it again and says it again. (12) Record job openings. (13) Taylor Swift gets + + + for best capitalist of the year. (More for subscribers.)

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