We´ve had, in 2016, a continuation of the ‘guessing game’ about when (the month) the FOMC will once again raise rates.
The year started off with Vice Chair Stanley Fischer ‘promising’ four rate hikes during the year. Subsequently, with incoming less than stellar data, that number has been reduced to 3, 2-3 and more recently ‘just’ 2.
As soon as the weaker than expected labor data was released on Friday, ‘bets’ for a June rate hike fell steeply.
Actually, the unemployment rate, which stood pat at 5%, was the result of two offsetting negatives: the small drop in the Population/Employment ratio, which all else equal would increase the unemployment rate, was just offset by the also small fall in the Labor Force Participation rate (LFPR), which all else equal would cause a decrease in the unemployment rate.
Interestingly, regarding the LFPR, we often hear that “a large portion of the decline in the LFPR in this cycle is due to demographics”.
The coincidence of the ‘demographic factor’ with the first large drop in nominal spending (aggregate demand or NGDP) since 1937 must surely be one of the world’s great coincidences!
In effect, reducing monetary policy to a ‘guessing game’ about the timing of the next rate hike just shows the ‘poverty’ of present day macro and monetary analysis. No wonder a “Great Stagnation” is the “winning paradigm”!