STOCK MARKET WATCH -- Wednesday, 16 September 2015

[Demeter]

2. Yellen's Former Aide Says a Rate Hike Would Be a Serious Error

http://www.bloomberg.com/news/articles/2015-09-15/yellen-s-former-aide-says-a-rate-hike-would-be-a-serious-error

There's labor supply out there that isn't measured by the jobless rate...The U.S. is probably about two years away from achieving full employment, no matter what the jobless rate suggests and Federal Reserve officials think.

That's the view of Andrew Levin, who served as a special adviser to former Fed Chairman Ben S. Bernanke and then-Vice Chair Janet Yellen from 2010 to 2012. "We're not even close to full employment,'' he said in an interview.

Levin, who is now a professor at Dartmouth College in Hanover, New Hampshire, maintains that it would be a big mistake for the Fed to raise interest rates this week and said the central bank should hold policy steady until well into 2016.

At 5.1 percent, joblessness is in line with the level that most Fed policy makers reckoned in June was the equivalent of full employment. (They'll be releasing updated estimates Thursday after a two-day meeting). That suggests that wage increases will start to accelerate—and inflation begin to rise—as employers find it increasingly difficult to hire the workers they want without paying them higher salaries.

Yet Levin said the headline unemployment rate doesn't capture all the slack left in the labor market, an argument that Yellen herself has made at various times since becoming Fed chair in February of last year...Millions of Americans working part time would take full-time employment if they could get it. And many others out of the labor market might be induced back in if they felt they had a chance at a job. Putting it all together, Levin calculates the amount of slack at 2.2 percent of the potential labor force, equivalent to around 3.5 million full-time jobs. While that's down from 7.8 percent at the end of 2009, it's still higher than the 2 percent average since 1994. And it's well above the 1.1 percent rate that prevailed in June 2004, when the Fed last started raising rates...

BUT IT ISN'T WHAT JANET THINKS...IT'S WHAT FISCHER'S MARCHING ORDERS FROM HIS PUPPETMASTERS SAY....WHEN THEY SAY "JUMP", THE FED ASKS "HOW HIGH?"