POINT OF VIEW: Reasons Mount For Extended Fed Inaction
05 Apr 11:45
By Neal Lipschutz
A Dow Jones Newswires Column
NEW YORK (Dow Jones)--Summer is typically the season for extended vacations,
but the March jobs report solidifies the case for the Federal Reserve to start
now on a long monetary policy holiday.
By broadly reinforcing the view that the nascent U.S. economic recovery is
just a few notches above feeble, the March unemployment data tell the Fed that
it likely will be quite a while before the central bankers can justify raising
interest rates.
Ever since the Fed stopped lowering short-term rates and the shallow
recession appeared to run its course, one of the biggest guessing games on Wall
Street has been when the Fed would start inching rates back up.
Right now, the overnight federal funds rate stands at a dramatically low
1.75%.
Those who figured rates would go up sooner rather than later pointed, among
other things, to the perception that the post-Sept. 11 rate cuts were done more
to reassure markets than for more traditional economic motives.
Therefore, this thinking goes, some at the Fed would be happy to start
reversing the rate trend and start pushing them back up. In other words, the
last cuts don't really count, so let's get rid of them fast.
But after Friday's release of March jobless data, any itchy policymakers
eager to raise rates at the May meeting of the rate-setting Federal Open Market
Committee will clearly have to restrain themselves.
This lack of action will likely need to be repeated throughout the summer
in order to give the economy time to really get its legs back under optimal
low-rate conditions.
The March data show 58,000 jobs were added in March, which marked the end of
a seven-month string of job losses. (The string was apparently broken in
February, but on Friday the Labor Department revised what it first said was a
66,000 job gain to a 2,000 job loss.) Meanwhile, in March, theunemployment
rate climbed to a surprising 5.7%.
Economists will tell worriers that employment is a lagging indicator, and
even within the March report there are signs of relative strength to be found.
In manufacturing, for instance, the number of jobs decreased in March, but
fewer were lost than in prior months.
But no matter how you read it, the March jobs report - the first broad,
official look at how the economy fared last month - does not raise any fears
that the economy is running faster than is healthy for the long term.
Average hourly earnings crept up to $14.67 from $14.63, so there is no fuel
from the key wage component of inflation.
Meanwhile, the outsized recent increases in energy costs for Americans are
enough to provide more than enough restraint on the recovery.
To the degree that having to pay more at the gas pump inhibits Americans'
ability to spend on other items, climbing energy costs put a crimp in a
recovery that is still waiting for corporate America to get off the mat and
make its own contribution to growth.
Energy prices are yet another reason to keep the Fed from raising rates.
So what should the central bank do during this lengthy period when rates
should be left alone? Well, Fed Chairman Alan Greenspan has already shown
himself adept at getting enmeshed in the important debates over better
corporate governance and accounting. And the new arrivals among the Fed
governors should appreciate the time to get acclimated. And the weather should
be starting to get warmer ...
Neal Lipschutz is senior editor, Americas, for Dow Jones Newswires.
-By Neal Lipschutz, Dow Jones Newswires, 201 938 5152
neal.lipschutz@dowjones.com
(END) DOW JONES NEWS 04-05-02
11:45 AM |
