The Fed Becomes a Demoralizing Embarrassment

US jobs dataAmerican job scene

However, the picture may be even sourer. As the chart of real median weekly earnings for males aged 16 to 64 shows, for nearly four decades real earnings has been flat to down, and such workers make less today than in 1979.

Blog Lab Mrkt June 17

Even with the slow-footed recovery of eight years, and the current 4.3% unemployment rate, there are presently about 1.2 people looking for work in the U.S., for every job opening.

Of the droopy labor market, the Fed opined in the latest Beige Book that, “Labor markets continued to tighten, with most Districts citing shortages across a broadening range of occupations and regions.”

And now this, courtesy of the regional San Francisco Fed, which also finds staff to pontificate on the national economy: “The labor market has further strengthened and appears to be at or even beyond full employment.“

The Fed and its sinecured staff suggest that a 4.8% unemployment rate, up from the current 4.3% unemployment — that is, when about 1.5 people are seeking work for every job opening—is the bare minimum tolerable unemployment rate.

How does the Fed settle on the ideal of 4.8% unemployment?

The unemployment rate in Japan is 2.8%.  There are 1.34 job openings for every job hunter, and still no inflation.

What should the employee-class in the United States make of this? Real wages have been soft for 40 years, and now the central bank says the national labor market is “beyond full employment.”

If the Fed is correct, then the U.S. cannot deliver higher living standards to employees, not now, and not in the last 40 years.


More dole and trade adjustments and Ivanka Trump-inspired paid maternity leave is not the path to higher living standards for Americans. A Fed that targets NGDPLT, and preferably errs on the high side, would be a big step in the right direction.

Orthodox macroeconomists and globalists have been making a case that open borders for immigration and rising trade deficits are in fact raising U.S. living standards, and that the Trumpsters are economically illiterate to suggest otherwise.

But the globalist promise appears somewhat hollow given 40 years of flat-to-down real weekly earnings, and in fact trade deficits are probably accelerating house price appreciation (due in large part to property zoning), according to a New York Fed study.

When empirical observations fly in the face of theories, what to do?

To remain relevant, orthodox central bankers and modern-era macroeconomists need to revise what is prominently discussed and treated by policy. The Phillips Curve is dead, but housing shortages and higher housing costs are rampant.

If what central bankers and national policy-makers promise is more of the same—more decades of higher house prices and stagnant wages—then who can blame the voting public for choosing something other than globalism and free enterprise?

The three finalists in 2016 for the U.S. presidency in the last election were Donald Trump, Bernie Sanders and Hillary Clinton.

Think about that.

For investors, there remains the possibility the Fed, obsessed with 2% inflation and fleeting bumps in wages will choke off this long but weak expansion.

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.