“The data that has come out of the U.S. lately hasn’t been very positive”. Although the unemployment rate is near longer-run norms, other measures of labor utilization are not. On its own it is an impressive statistic, however, one must not that the labour-force participation rate (LFPR) remains below trend, and a large number of people who seek full-time employment are working part time.
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But he also cautioned the group that the United States is now more exposed than ever to worldwide events and that developments in China and elsewhere had already influenced the Fed to delay a widely expected rate increase in September.
As you know, the last two months saw slower reported payroll gains of about 140,000 per month.
Economists now expect the gross domestic product, adjusted for inflation, to rise 2.5 percent for the year, according to the survey by the National Association for Business Economics. Investors have interpreted Federal Reserve minutes that were released on Thursday as providing further proof that US interest rates may remain on hold for the rest of 2015.
Two more job reports may be critical in making the decision.
Although the labor market has been approaching estimates of maximum employment, inflation has been well below the FOMC’s 2 percent objective. Prices were up 1.6 percent last week.
“Over the past 15 months, USA monetary policy deliberations have been taking place against a backdrop of progressively gloomier projections of global demand”, she said.
Also on Friday, Fed Vice Chairman Stanley Fischer added that the central bank is paying increasing attention to worldwide events (read: the situation in China), and while the Fed’s mandate is based on USA economic performance, the Fed doesn’t want to damage the global economy.
A delayed rate increase is good for gold, as the metal is typically more competitive against yield-bearing assets when rates remain near zero.
Fischer is considered on the “hawkish” or aggressive side of the Fed’s committee that votes on interest rates, meaning he’s generally more in favor of raising rates.
However, that is an expectation, not a commitment.
He said it was “conceivable that inflation may rise more slowly or rapidly than we now anticipate”, which would cause the Fed to tweak its plans.
Brainard also cited concerns about the global economic outlook.
According to Alister Bull, an editor with Bloomberg News, Lockhart said questions around whether the Fed will or will not raise interest rates this year, “has become the O.J. Simpson trial of monetary policy”.
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He recommends now as the time to lock in interest rates.
