Fed recoils from 1937 tightening error as jobs evaporate
The American economy has shed 347,000 jobs over the past two months, roughly comparable with the rate of loss seen during the Great Recession. It is remarkable that the US Federal Reserve should even have been thinking of phasing out life-support in such circumstances.
By Ambrose Evans-Pritchard
18 Sep 2013
The Fed’s tough talk has already led to a 140 basis point rise in US 10-year Treasury yields, the benchmark price money for US mortgages and for the world (ex-China). It might as well have raised rates six times.
The shock decision on Wednesday night to put off tapering bond purchases is a recognition of what should have been obvious. Rising mortgage costs and the “tightening of financial conditions” could slow growth, it said. Indeed.
The net loss of jobs over the summer months has been entirely among men, mostly aged 25 to 54 and university educated. The cohort aged over 55 has been growing, so this is not happening because baby boomers are retiring early and happy to grow cantaloupes in Arkansas, or to play golf at Torrey Pines.
The labour “participation rate” dropped to 63.2pc in July, the lowest level since the late 1970s. The rate for men is at an all-time low. The unemployment rate has been falling, but chiefly because so many people are giving up hope and dropping off the rolls.
Some Fed governors seem to want to wash their hands of this, latching on to theories that the problem is “structural”: due to evolving technology, or a “skills mismatch”, or that catch-all concept “demographics”. No doubt this is half true, but such claims were made in the early 1980s when jobs were scarce. The unemployed were decried as “shirkers” by the Chicago Tribune in the 1930s.