If Fed Acknowledges That Economy Cannot Get Unemployment Below 6.5% (Government Manufactured Number) , The Economy Is In Worse Straits Than We Suspect!

Economists: Fed Likely to Scrap Jobless Target

Monday, 17 Mar 2014 03:26 PM

Share:

A    A   |

   Email Us   |

   Print   |

   Forward Article  |

   Get Short Link

• 0
  inShare

The Federal Reserve will probably scrap its 6.5 percent unemployment rate threshold and switch to qualitative guidance for signaling when it will consider raising the main interest rate from near zero, according to economists in a survey.
The Federal Open Market Committee, which adopted the jobless threshold more than a year ago, will say on Wednesday that it will instead link policy to a range of economic indicators, according to 76 percent of economists in a March 14-17 Bloomberg News survey. Twenty percent of 54 economists surveyed said the Fed will maintain the threshold, while 6 percent said the Fed will drop such guidance entirely.
 
Fed Chair Janet Yellen and her colleagues are considering ways to clarify when they’ll increase borrowing costs for the first time since 2006 after payrolls rose more than projected last month and unemployment fell to 6.7 percent from 7 percent in November. They plan to begin a two-day meeting Tuesday.
Policy makers will lean toward “less specificity and a greater emphasis on just judgment,” said John Silvia, chief economist at Wells Fargo & Co. in Charlotte, North Carolina.
“Often these economic numbers can move in ways you don’t anticipate and because of things you can’t anticipate, and I think they got caught off guard,” he said, citing the fall in joblessness.
Policy makers at their Dec. 17-18 meeting forecast unemployment would decline by the end of this year to 6.3 percent to 6.6 percent. Joblessness has fallen from 7.5 percent in June and a 26-year high of 10 percent in October 2009.
Every Meeting
The FOMC this week also will announce a cut in monthly bond purchases by $10 billion to $55 billion and continue reductions at that pace at every meeting before announcing an end to the buying at its Oct. 28-29 gathering, according to the median of responses in the survey. Policy makers at each of their prior two meetings have cut monthly purchases by $10 billion.
The committee “will likely reduce the pace of asset purchases in further measured steps at future meetings,” Yellen said to the Senate Banking Committee on Feb. 27. “That said, purchases are not on a preset course, and the committee’s decisions about their pace will remain contingent on its outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.”
Federal Reserve Bank of New York President William C. Dudley in comments on March 6 endorsed a switch to qualitative guidance. In a speech the following day he said the decline in the jobless rate “significantly overstates the degree of improvement in the labor market.” People dropping out of the labor force accounts for much of the fall in the unemployment rate, said Dudley, FOMC vice chairman.
“Dudley seemed pretty clear it’s time to abandon the 6.5 percent unemployment rate, and it makes sense to do it before their backs are up to the wall” should the jobless rate fall further, said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. “They’ve laid down enough clues to tell me that they’re ready to make the change.”


© Copyright 2014 Bloomberg News. All rights reserved.