The FOMC just did a great thing. The Federal Reserve tied interest rates and quantitative easing to U.S. labor. The messaging alone is powerful. The Federal Reserve is saying, very clearly, U.S. workers matter. Businesses need to start hiring and increasing wages if they want to actually improve the overall economy.
About 5 million people—more than 40 percent of the unemployed—have been without a job for six months or more, and millions more who say they would like full-time work have been able to find only part-time employment or have stopped looking entirely. The conditions now prevailing in the job market represent an enormous waste of human and economic potential.
The FOMC set out specific parameters to the ongoing QE3.
To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal,
The FOMC removed the old calender date for when their policies might change and instead tied their actions to a host of labor conditions, specifically an unemployment rate of 6.5%. They also tied their actions to the inflation rate. Below is the FOMC long term economic projections.
The first thing to notice is long term, the FOMC doesn't believe the U.S. will return to even 2007 pre-recession unemployment rates of 5.0%. This isn't good for in 2000, the official unemployment rate was 4.0%. Obviously the FOMC believes American labor will be suffering for years to come. The clear message from the FOMC is hiring Americans does matter, does impact the overall economy and growth, so much so labor is now officially tied to their ballooning balance sheets.
We expect to continue asset purchases until we see a substantial improvement in the outlook for the labor market, in a context of price stability. In assessing the extent of progress, the Committee will be evaluating a range of labor market indicators, including the unemployment rate, payroll employment, hours worked, and labor force participation, among others. Because increases in demand and production are normally precursors to improvements in labor market conditions, we will also be looking carefully at the pace of economic activity more broadly.
If only Congress and Wall Street would do the same, tie policy directly to the employment of America's citizens. Over and over again, the last thing mentioned in Congressional policy is tying tax rebates to the hiring and retaining of U.S. citizens. Americans are last on the list for consideration in employment and income, yet first up for destruction of their jobs, social security, pensions and social safety nets. While the Federal Reserve tied their policies to the unemployment rate, the reality is they can have little effect. As long as Congress and this administration continue to allow our trade deficit to balloon, allow employers to offshore outsource jobs, manipulate immigration policy for the purposes of labor arbitrage and not tie economic benefits of businesses directly to the people they employ, no doubt America's labor malaise will continue. From the FOMC statement:
The Committee remains concerned that, without sufficient policy cccommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions.
Below is the change in the unemployment rate from one year ago. As we can see the unemployment rate has barely broken a -1.0 percentage point reduction in a year. The FOMC did say they were paying attention to labor participation rates, which is good since the evidence is clear millions of people who need a job are not being counted as unemployed.
The Committee will also take into account the extent to which that decline was associated with increases in employment and hours worked, as opposed to (say) increases in the number of discouraged workers and falling labor participation. The Committee will also consider whether the improvement in the unemployment rate appears sustainable.
The committee stated they do not expect unemployment to go below 6.5% until mid-2015. This means the federal funds rate will stay effectively 0% until that time, at least.
The real hidden opinion in today's FOMC announcement is to America's employers. Work matters, employment matters and businesses operating in the United States, bottom line, are laying waste to America by not hiring her citizens. Good job FOMC!
The surreal increase in the Federal Reserve balance sheet will continue. The Fed will continue to buy $85 billion a month of mortgage backed securities and long term U.S. Treasury bonds. If we take this to mid 2015, it means the Federal Reserve balance sheet will expand by $2.6 trillion. If you think the Federal Reserve Bank balance sheet looks outrageous now, wait a year. That's an expansion of their balance sheet by $1.02 trillion per year, or to a whopping $5.4 trillion by mid 2015. Below is the Federal Reserve Bank balance sheet as of December 5th, 2012.
Bernanke also discussed the fiscal cliff during the press conference and requested Congress do no harm to the economy. Fat chance on that one considering we have multinational corporations lobbying Congress, complete with an agenda which is guaranteed to hurt the economy and especially American labor. Bottom line, the Fed is powerless over the corruption and craziness of Congress and is one reason we have the obscene ballooning central bank balance sheets as a counter to political corruption and policy agendas touted which are really masked national economic suicide.
We cannot offset the impact of the fiscal cliff - Bernanke
Bernanke reiterated the fiery rhetoric on the fiscal cliff and almost implored Congress to not derail the economy during the last half of the below press conference. Bernanke also noted the financial crisis really did impact the potential output of the U.S. economy. In other words, the Banksters evil doings actually negatively impacted America's long term growth by limiting everything from investment to funding advances in technology.
Below is Ben Bernanke's press conference on the FOMC actions and tis a shame only the main stream media press is allowed to ask questions.
Comments
The Fed only controls
The Fed only controls interest rates.
It does not control unemployment or inflation.
Japan's Central Bank has been 'easing' for two decades, yet Japan has deflation and decline.
Time to kick Milt Friedman's monetarism to the curb, and embrace Post-Keynesian models, instead.
I'd say that's not quite so
The Federal Reserve can strongly influence inflation as history proves by the money supply and interest rates.
The Federal Reserve cannot force employers to start hiring people, this is under the purview of our crazy Congress, who is so busy trying to attack social safety nets, the last thing on their minds is enacting policy forcing employers to do just that, hire.
I don't want to forget QE, along with MBSes is a pure gift to Wall Street and makes commodities esp. increase, stocks increase. It's Wall Street's crack.
All of this said, I think tying Federal Reserve policies to the unemployment rate was a strong political statement. I get the impression if the Federal Reserve could force Congress and this administration to enact policies to get people hired and wages increased, they would.
This shows how pathetic this administration and Congress is for while the Fed just put the jobs crisis front and center is almost every press release they issue from now on, this Congress seems hell bent in making sure more jobs are lost on a host of fronts.
It's absolutely obscene, over and over again they enact corporate lobbyist wish list policies claiming they do x when they really do y and it's been proved repeatedly those policies do y, which usually involve hurting the U.S. middle class, labor, hiring, employment, income, retirement as well as the economy at large.
More, it seems the Federal Reserve charter should be somehow expanded to give them better tools for labor markets to get people hired. They have this as their purview without the toolkit. Seems odd, although that toolkit is primarily policies. Right now they have trickle upon tools, which clearly just feed the Wall Street beast and not main street.
I know it's popular to hate the Fed, esp. with the ballooning balance sheet but honestly, what they report these days does make them, by rhetoric, the smartest people in the room.
Evans criteria
There is a lot of chatter on how the Fed adopted the Evans criteria which I guess they read somewhere else.
Charles Evans is the Chicago Fed bank Pres. and he gave a speech, link here about the Fed should base decisions on hard economic thresholds.
I think that's all good, and am thrilled unemployment is made front and center now, yet the reality is, the Fed just doesn't have the real tools in many ways to affect employment, not like Congress does and they are busying making sure we have continued unemployment.
First, the Fed should admit the official UE rate is pure BS
The first step for the Fed and the rest of the folks in charge of destroying our country is to admit that unemployment is nowhere near the official rate. Seriously, what are they claiming, 7.8%, 7.9%? Funny, few jobs being added/posted, few of those real jobs (most are recruiting asses, companies doing their best to post ads so they get 20,000 applicants, reject all, then get visa applicants for 1/4 pay, etc.). I know shadowstats may have detractors as to exact numbers, but everyone can agree the real unemployment rate is 20%+! That's almost 3X the rate the Fed and the rest are using. And of course with more people simply dropping off the map, running out of unemployment benefits, eligibility being cut down in weeks, and tens of millions never eligible in the first place (e.g., contractors, temp workers, etc.) the stats are completely useless and becoming increasingly laughable. When everyone's out of work for long enough, the Fed can claim 0% unemployment. Farce.
As for this QE to infinity, it just benefits primary dealers who get their cut of Fed money/our money because they are the only ones with a seat at the table. Here's a list of primary dealers:
Bank of Nova Scotia, New York Agency; BMO Capital Markets Corp.; BNP Paribas Securities Corp.; Barclays Capital Inc.; Cantor Fitzgerald & Co.
Citigroup Global Markets Inc.; Credit Suisse Securities (USA) LLC; Daiwa Capital Markets America Inc.; Deutsche Bank Securities Inc.; Goldman, Sachs & Co.;
HSBC Securities (USA) Inc.; Jefferies & Company, Inc.; J.P. Morgan Securities LLC; Merrill Lynch, Pierce, Fenner & Smith Incorporated; Mizuho Securities USA Inc.; Morgan Stanley & Co. LLC; Nomura Securities International, Inc.; RBC Capital Markets, LLC; RBS Securities Inc.; SG Americas Securities, LLC;
and UBS Securities LLC.
Great, so while the Fed inflates money and thereby punishes people who rely on fixed incomes (like the elderly and unemployed) and creates more money sloshing around the global economy (which will inevitably inflate commodities despite recent drops), it helps out everyone's favorite banksters because the Fed is controlled and owned by banksters. That list is a who's who of fraud and international crime and corruption.
QE 3, 4 . . . +1 gives newly printed cash to Canadian banks? Scottish banks? Japanese banks? Swiss banks? French banks? German banks? Yes, they are primary dealers. Tax evading banks? Yes, check that list. Banks that launder money for drug cartels and terrorists? Yes, they are on the list. Banks that fix LIBOR rates? Yes, Barclays is on the list along with other price fixers. Commodities fixers? Yes, Goldman and JP Morgan. Foreclosure fraud and bribery? Yes.
All of these banks make money because they get a cut of every single bill printed up and sent out. It's a great gig if you can get it, demand more money, Bernanke and the Fed follow orders, and then take what you want. They can siphon off whatever they want. And what they don't take outright they play with in derivative bets, commodities bets, etc. The Fed can pay all the lip service it wants about unemployment. If it cared, it would admit the unemployment rate used by the govt. is a farce. Secondly, admit that its actions only help banksters and hurt the average citizen around the globe. Third, admit that the only way unemployment comes down is if the US, like China, Japan, Korea, etc. focuses on strict immigration laws, preventing outsourcing, and ensuring its own citizens are fully employed before it does anything else that compromises national security or the security and welfare of its own citizens.
If QE1, 2, 3, or whatever had any correlation or causal relationship whatsoever to a drop in unemployment, we have yet to see it. Maybe by the time QE5 or 6 rolls around no one will be counted as unemployed so the Fed and govt. can claim success. But given the inability of QE3 to even create a wealth effect by boosting stocks for more than 1 day, it's obvious Ben can't do anything useful other than help out fellow bank servants/future private bank partners.
The Fed did recognize the Unemployment rate is leaving some out
Bernanke mentioned multiple times labor participation rates and how it is not all retirees and other claims. They are not just looking at the official unemployment rate, but a host of labor figures, which is nice and the huge reason every month I go into excruciating detail on the employment statistics.
I sincerely doubt this but out of Bernanke's mouth it is like he is reading this site. I'm not kidding for we amplified the waste of American talent, how data points are real people and much of his rhetoric, for years now.
If you listen to the press conference Bernanke mentions a host of things that validate our analysis, and are spot on.
QE is not affecting inflation and why we dig into such detail on CPI. I just commented that global demand trumps QE on commodities.
Now on housing prices, the theory "should be" buying up MBSes causes mortgage rates to drop like a stone, but of course, the Banksters are raking it in and this deserves it's own analysis post.
Banks don't make money on "printing money", they make money by borrowing at zero percent and they playing their derivatives games on that borrowed "free" money and other methods.
QE doesn't have any effect on unemployment, see the link in the article.
I don't agree the unemployment rate is 20%+. I'd say it's more around 18%, which is outrageous.
The real power of what the Fed just did was to put the focus on labor, on the unemployment rate. Now, every time politicians and pundits talk about what the Fed is up to, they must mention the jobs crisis. That's the power.
Primary dealers still making loot despite crimes - that's a joke
If Average Joe or Jane is rumored to be under investigation for anything, civil or criminal, inside or outside an office or factory floor, he or she can expect suspension and/or dismissal ASAP. Of course they are still subject to the civil or criminal penalties outside the workplace as well. They are utterly destroyed, even if the allegations are completely unfounded. These big banksters (and corporations in general) never fear anything. No matter what they do, they never get suspended or punished. And personal responsibility within boardroom walls? Ha ha ha, what's that? Even when they admit guilt, it means nothing. If it all goes wrong, they just pass on fees and fines on to customers and clients aka "Muppets" (thank you Goldman Sucks for enriching the English language as only you can do). Whether it's bribery, money laundering, destruction of evidence, etc., they are above the law. They are the law. Whether it's banks, pharmaceuticals, defense, or any other sector, if you are big enough, the rules and laws simply don't apply. And you can get megarich and step on the masses laughing all the way to your compound. How's that for democracy?
drug cartels, Iran
Drug cartels alone are responsible for more death than Iraq per year, so this is really disgusting. This article hit right as these announcement were made, but since that publication time a host of people have written their outrage, including Senator Merkeley.
Or course he's quick to sell out workers via "immigration" agenda, in particular STEM, so once again our classic rhetoric of outage.
Media + economists going along with the bogus UE rates
Last night a British economist and/or analyst on Bloomberg was discussing the Fed's latest move. The guest was saying it was possible that UE could drop to somewhere around 6.5% to 6.9% (not sure exact point) in 12 to 18 months! The anchor, paid not to ask questions that might contradict guests or expose lies/impossibilities, simply nodded and moved on. The guest then said Ben would be in an awkward position because he promised ZIRP for more time than that which would have him promising ZIRP while also forcing him to raise rates.
Isn't it amazing how statistics lose all meaning when people make up facts, ignore reality, and just mislead or flat out lie all the time? Assuming the unemployment rate is even at 7.9% (in Fantasyland), how is it possible to drop the unemployment rate to under 7% in 12 months when under 150,000 jobs are being created and still we have 350,000-400,000 initial claims every week? There is no job growth, none. Now take this non-job growth and apply it to the real unemployment rate of 18%-22%+. And the graphs that show it would take many, many years to get back to employment levels of pre-2007. And consider the actual labor participation rate across all age groups. And the job types and pay those jobs that actually exist offer. But these statements that it could take 12 - 18 months to drop unemployment under 7% are allowed to go unchecked? And these people get paid for their advice and "insights"? What a clown show, a full on clown show.
unemployment rate to 6.5% in 12-18 mnths
That's why I put up the annual drop in the unemployment rate graph up. Let's assume the graph remains constant, it means unemployment would drop another 1.0 percentage point to 6.7% in a year.
It's possible in other words. That said, the Fed's projections are different and why the projections table.
No argument from me that 1.8 million jobs in a year isn't enough. We have the requirement of around 1.2 million jobs a month needed to keep up with working population growth.
I don't think Bloomberg pays their guests as I don't think most shows do. I'm not sure about this but I believe only the pundits make the big bucks.
Yeah, well, think about the housing bubble and financial crisis and right up to it happening, "oh nothing is wrong", buy Bear Sterns, Lehman is fine and so on.