Fed divided over improvement of US jobs market

GMT 20:29 2014 Wednesday ,20 August

Arab Today, arab today Fed divided over improvement of US jobs market

The US Federal Reserve
Washington - AFP

Federal Reserve policymakers showed increasing divisions in their last meeting over how much the US jobs market has improved, a key factor in deciding how soon they should tighten policy.
While the participants of the July 29–30 Federal Open Market Committee remained nearly unanimous in their support for the existing Fed policy course, the minutes of the meeting, released Wednesday, showed an intensifying debate over plans for raising interest rates late next year.
The record showed the discussion increasingly focused on how much the labor market has tightened and how that would impact inflation, which has remained modest so far.
So-called inflation hawks outside the Fed, and a small number inside the central bank, have been calling for an accelerated schedule to increase the benchmark Fed funds rate, which has been held near zero for nearly six years.
The minutes suggested that there were more hawkish views on the FOMC than just the known dissent of Charles Plosser, the head of the Fed's Philadelphia branch.
They showed that several FOMC members felt the sharp fall in the unemployment rate to 6.2 percent from 7.3 percent a year ago, was a good indicator of the tightening situation.
But others said the high numbers of long-term unemployed and part-time workers represented continued slack, or weakness in the market, that could not be seen in the jobless rate.
Despite the jobless rate having fallen quickly, "many participants continued to see a larger gap between current labor market conditions and those consistent with their assessments of normal levels of labor utilization," the minutes said.
Economists generally see a tightening labor market as likely to push up wages, fueling an acceleration of price rises.
So far, however, that has not happened. The US consumer price index rose just 0.1 percent in July and 2.0 percent year-on-year, and real wages have increased just 0.3 percent in one year.
The more hawkish views on the Fed panel argued that there were solid signs of improvement, including the diminishing number of long-term unemployed and part-time workers.
A couple participants argued as well that changes in the labor market could mean that wage pressures in fact "might not be a reliable leading indicator of higher inflation."
If they are right, inflation could pick up, forcing the Fed's hand on interest rates, without any sign of rising earnings in the jobs market.
That will likely be one of the issues debated when central bankers, led by Fed Chair Janet Yellen and the European Central Bank chief Mario Draghi, gather for three days starting Thursday in Jackson Hole, Wyoming for the Fed's annual policy symposium.

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