4 reasons the Fed won’t raise interest rates anytime soon | Mt Kisco Real Estate

Federal Reserve Chair Janet Yellen said early Monday that the economy and the job market are still ailing and that they will need “extraordinary” assistance from the central bank in the form of low interest rates “for some time.”

It was three words about short-term interest rate policy that sent out more reassurance for investors than her three words March 19 – “about six months” – which sent markets into a spiral.

After last week’s Federal Open Market Committee meeting, Yellen said that the Fed could start raising short-term rates “about six months” after it completed its ongoing tapering of Treasury and bond purchases, which most expect to be unwound by the fourth quarter of 2014.

Speaking in Chicago Monday, Yellen also justified the change from a specific goalpost – 6.5% unemployment – to a more vague and subjective “quantitative guidance” needed given the slack in the labor market, despite the official unemployment rate now standing at 6.7%.

She gave four reasons why she thinks the employment market is still soft.

1) The large number of part-timers.

One form of evidence for slack is found in other labor market data, beyond the unemployment rate or payrolls, some of which I have touched on already. For example, the 7 million people who are working part time but would like a full-time job. This number is much larger than we would expect at 6.7% unemployment, based on past experience, and the existence of such a large pool of “partly unemployed” workers is a sign that labor conditions are worse than indicated by the unemployment rate. Statistics on job turnover also point to considerable slack in the labor market. Although firms are now laying off fewer workers, they have been reluctant to increase the pace of hiring. Likewise, the number of people who voluntarily quit their jobs is noticeably below levels before the recession; that is an indicator that people are reluctant to risk leaving their jobs because they worry that it will be hard to find another. It is also a sign that firms may not be recruiting very aggressively to hire workers away from their competitors.

 

 

 

http://www.housingwire.com/articles/29497-reasons-the-fed-wont-raise-interest-rates-anytime-soon