United States

Employment looking for more traction

MONTHLY MARKET COMMENTARY  | 

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The Federal Open Market Committee (FOMC) ended meetings in September without an increase in short term interest rates. Along with an uncertain outlook for China and other emerging market economies, the FOMC cited a need for further improvement in the U.S. labor market to help move inflation back toward the 2 percent objective.

The FOMC’s labor market reference is an interesting one, in that the widely followed unemployment rate appears to have already recovered. After peaking at 10 percent in 2009, U.S. unemployment has dropped to 5.1 percent in August of this year. This is well within the FOMC estimates of the longer-run normal rate of unemployment range of 4.7 to 5.8 percent.

Conventional wisdom might indicate that this decline in unemployment would have already stimulated economic growth, providing upward pressure on inflation toward the Fed target of 2 percent. Yet, growth has continued a slow pace and inflation still resides at only 1.3 percent.

So what’s missing? The answer may very well lie not with the unemployed, but with the employed.

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