You have to ask yourself: does the Federal Reserve still want to raise interest rates?
On Monday, we got a devastating jobs report. In May, the economy created only 38,000 jobs. That alone makes it the weakest month in just under six years. Now 38,000 jobs might sound okay, but the economy has to create roughly 150,000 jobs just to stay even because more people join the labor force than leave it. But worse than that, the Department of Labor revised the number of jobs created in the previous two months by 59,000. So we have a net loss of 21,000 jobs.
A Very Bad Quarter
If we look at the last three months now, the average monthly job gains has been 116,000. In other words, even if we just assume this is a blip, as Brad DeLong does, the economy is not even managing to tread water; it is sinking.
If you are a casual listener of economic news, the only thing you likely have heard is that the the unemployment rate went down from 5.0% to 4.7%. But this has nothing to do with people getting jobs, obviously. This is just the result of a sudden drop in labor force participation. More people have given up looking for work, so they aren’t counted as being unemployed, even though most of them do want jobs and have simply given up looking for one.
Fed Can’t Raise Interest Rates — for Now
The good news about all of this is that it makes it almost impossible for the Federal Reserve to get away with raising interest rates at its June meeting. And as The Wall Street Journal put it in a statement that drips with disappointment, it “complicates the possibility of a move at the July meeting.” But it isn’t just the Wall Street apologists who want interest rate increases; the Federal Reserve itself has been itching to raise them for the past several years.
The justification is always the same: the economy is improving and so in order to head off inflation, the Fed must raise interest rates. But this is pure hokum. The Fed wants to raise interest rates because it is good for the banking industry. And so it has looked for any excuse to do so. When they raised interest rates in December, there was no compelling reason to do it. The Fed claimed that the economy was going to grow faster in 2016 than it had the previous year. (The Fed has been making this same claim for the last several years.) As Dean Baker wrote at the time, “Job growth was likely to slow even without the Fed raising rates.” And six months later, we see he was (as usual) quite right.
But I’m not angry so much that the Federal Reserve is wrong time and time again. I’m angry that even now, the people at the Fed are disappointed not that the economy continues to struggle but that their handy justification for raising rates has been taken away from them. Just a week ago, The Guardian reported, Fed Chief Janet Yellen Says Interest Rates Will Rise “in Coming Months.” With the year almost half over, the Fed was set to raise interest rates two to three more times.
This is what Janet Yellen said two weeks ago:
Yes, most appropriate because I can guarantee you she has no friends who are struggling to find a job.
The only person on the Fed who seems to consistently make sense is Lael Brainard. And she was quick to grab onto the Jobs Reports and urge caution. But the question is whether it matters. After years of the inflation rate being below the Fed’s 2% target, most of the members of the Fed are not willing to let it go even up to 2% — much less above it.
The Fed Is Against You
As it is, the 2% inflation target is a number that Alan Greenspan pulled out of the air. And since he left the Fed, that 2% target has turned into a 2% ceiling. I find it aggravating that we are even talking about this. The truth is that all the ideas that Hillary Clinton and Bernie Sanders have for creating jobs mean nothing. And that is because the moment the the Federal Reserve sees the lives of working people improve, it will raise interest rates and put a stop to it. As it is, they want to do that without seeing the lives of working people improve.
The truth is that the Federal Reserve has far more power over you than the president or the Supreme Court or Congress or any other institution. And it is absolutely against your interests. We might as well just make the president of Bank of America the king and he can decide whether or not you can have a job and if you can, how much you can get paid. That’s what the Federal Reserve does.