Yahoo Finance Fed: Goodbye, unemployment
You can stop worrying about unemployment now.
At least that seems to be thinking among members of the Federal Reserve Board of Governors, who have been making it clear they are turning their attention to the central bank's other mandated responsibility-- controlling inflation.
Today, Chicago Fed President Charles Evans told a London audience that despite what he calls the “terrific” progress made in reducing unemployment, the Fed should hold off on raising interest rates until inflation ticks up.
Yahoo Finance Editor-in-Chief Andy Serwer points out that a similar theme was struck by Vice Chairman Stanley Fischer earlier in the week, when he said in New York that unemployment is near its “natural” level of 5%.
“He was basically dismissive of the unemployment problem or issue or rate, saying that’s sort of over,” Serwer says. “It’s kind of a battle that’s been fought and won and right now the Fed needs to focus on inflation, it needs to come back to that 2% historic level.”
Serwer adds it appears clear Fed Chair Janet Yellen and company have put the need to boost job creation in the rear-view mirror.
“A lot of people are not going to like the fact that the unemployment war is being declared won,” he notes. “But the Fed is looking forward. It’s like Duke basketball coach Mike Krzyzewski saying ‘next play.’”
Divine Capital founder and CEO Danielle Hughes isn’t sure the Fed has it right.
“We’ve gone through such a major structural change with respect to the job market,” she argues. “So we’re looking at things with the glasses that we’ve had on for so many years, it’s not the same animal anymore.”
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Hughes notes the Fed might not have the proper tools to measure the workforce of the 21st century.
“We’ve changed the way that we’ve worked, technology has changed the way everybody appears and shows up for work-- a lot of those things are not taken into account,” she says. “We’re measuring how many people are going out for unemployment insurance and a lot of people have fallen off that roll. Think of how many people have actually gone off the grid and started their own companies-- they’re not measured in the same way as traditional unemployment and employment is. So the denominator has changed.”
And Hughes believes Wall Street worries the Fed isn’t keeping up with the times.
“Market investors look at that and get nervous because the Fed has traditionally overreacted or come to the party way, way too late,” she says. “So we don’t know how to measure this Fed yet. And I think you see that in the marketplace.”
Serwer adds there are indications Yellen and company are going to embrace some alternative methods of gauging economic activity, such as following Twitter (TWTR) tweets. But don’t expect them to move too quickly on that.
“The Fed is looking at new metrics, new ways to measure the economy,” he says. “It’s going to be really interesting to see if it changes the way it looks at the economy. It probably should, but you know how the Fed will do it-- carefully.”
