With the upward revisions to prior months’ figures and the fall in the unemployment rate to 5.1% in August, the Bureau of Labor Statistics release was a stronger U.S. employment report than the headline number of 173,000 would suggest. That said, average hourly earnings growth at 2.2% year over year indicates that the true (but unobserved) non-accelerating inflation rate of unemployment, known as NAIRU, likely has a 4 handle. (Read our prior blog post on why NAIRU is a key indicator in Fed decision-making.) Also note the job loss in manufacturing, which likely reflects the slowdown in global growth and the stronger dollar.
As this all relates to the upcoming September Fed meeting, the ball is in Janet Yellen’s court. As a leading advocate for “data dependent” monetary policy, if she wants to start hiking in September, she can pick and choose among U.S. economic data to support that case. (For more info, read our Global Central Bank Focus, “Data Dependence Is Not a Monetary Policy, But Are the Dots?”) In making her decision, she will no doubt factor in Vice Chair Stan Fischer’s views. Please consider the following exchange between CNBC journalist Steve Liesman and Stan Fischer at Jackson Hole last week:
Liesman: “Wouldn’t you think there would be an overwhelming case, though, in one way or the other, that you would be sure and confident that – look – there’s this, you know, unimpeachable case that it’s time to go forward [with a rate hike]?”
Fischer: “When the case is overwhelming, if you wait that long, you will be waiting too long.”
Liesman: “So it’s always a bit of a confidence in – ”
Fischer: “There is always uncertainty and we just have to recognize it. We’ll have to make a decision in the face of considerable uncertainty.”
With a robust labor market, revised data showing that first-half U.S. growth was above trend, and officials such as Fischer indicating that there is good reason for them to project that inflation will rise toward 2% in coming years, it sounds to us like Stan Fischer, at least, will have the data he needs to support a rate hike at the September meeting. (Read our blog post on the Fed’s views on inflation versus the market’s views.)
Yellen has said much less in recent weeks, and she did not attend Jackson Hole. She is keeping her options open. But at least to Fischer, it seems, if Yellen waits until the case is overwhelming, she may be waiting too long.