Jay Powell, head of the Fed, has been working on a year-long project to overhaul one of the Fed’s most important goals. That goal is full employment. The Fed only has two mandates, stable prices in the economy, and maximum employment. Yet the definition of maximum employment is now up for debate. At the core of the consideration is the idea that having a job is different than having a good job. The difference between the two means the Fed may use a different calculation for measuring employment. That potential change has huge implications, as it would likely lead to looser monetary policy both in the immediate future and further out.
FINSUM: We think there is a big difference between the quality of different jobs in the economy which needs to be accounted for by the Fed. The current way of measuring employment was designed when most jobs were permanent and full-time, but with the rise of the gig economy, measuring methods need to shift to account for the changing nature of the labor market.
One of the core tenants of US central banking is being shunned by Jay Powell’s Fed. Former central bank leadership had always taken the approach that tight labor markets posed a serious threat for higher inflation. However, Powell is stepping away from that view. Labor markets remain tight, with unemployment very low and strong job creation consistent. Yet, the Fed has completely stepped off the gas pedal on rate hikes, a position that runs counter to previous approaches.
FINSUM: At least in this cycle, the relationship between labor markets and inflation seems to be thoroughly broken. The reality is that no one can give a great answer as to why, but Powell’s policy nonetheless sticks to the idea that the link is severed.
Donald Trump has promised to make America great again and everyone hopes he will. This Bloomberg article proposes the best metrics to see if that is happening. The article separates certain aspects (outside of the most common economic measures) into three categories—those with a low chance of improvement, those which might see some modest gains or stay the same, and those where strong gains may be seen. Those with the lowest chance of success will be bringing manufacturing jobs back, reducing the trade deficit, and balancing the federal budget. Those with a medium chance of success are increased economic growth, a reduction in the population living under poverty, an increase in new businesses, and more workers moving from part-time to full-time. The things with the highest chance of success are getting corporate America to start spending again, getting American workers better raises, and better labor force participation after years in the doldrums.
FINSUM: These are big challenges for Trump to overcome, but we think there will be success on a number of these fronts, at least in the near to medium term.
US factory output is doing well. The figure is finally back to its pre-recession level. However, something drastic has changed—total output has finally recovered, but with about 20% fewer workers. That means almost 1.5m jobs have disappeared. In December 2007 there were 13.7m workers employed in US factories, as of November this year that number is just 12.3m. The stats have continued this way for some time, as technology marches ever onward. The article frames this as challenging Trump’s idea of expanding US factory employment. “We’ve seen these trends going on for decades, and it’s unlikely to see a reason why those would change”, said a commentator from the Fed about factory employment.
FINSUM: This article does a good job investigating the drivers for the technology trend—especially that rich country factories can compete with low-cost imports if they have good technology that makes production cheaper. That is going to be a hard driver to change.
Source: Wall Street Journal
A multitude of forces are conspiring to bring an end to Wall Street’s decade long period of layoffs. Through October of this year, dismissals had dropped to their lowest level in ten years, and that was before Trump’s election, which is likely to cause a hiring spree at banks. Banks no longer need the same kind of “bloodletting” that they did since the Crisis. While Trump’s victory may cause a new boom in hiring due to less regulation, one corner of the industry will likely be hit hard—compliance departments. Compliance functions have seen a big surge in hiring alongside Dodd-Frank, but Trump’s plan to dismantle that piece of legislation may cause a large pullback.
FINSUM: We suspect Wall Street may be headed towards a new golden era. The post-crisis paradigm of more and more regulation is likely dead, and banks may now finally see a resurgence.