The FOMC just did a great thing. The Federal Reserve tied interest rates and quantitative easing to U.S. labor. The messaging alone is powerful. The Federal Reserve is saying, very clearly, U.S. workers matter. Businesses need to start hiring and increasing wages if they want to actually improve the overall economy.
About 5 million people—more than 40 percent of the unemployed—have been without a job for six months or more, and millions more who say they would like full-time work have been able to find only part-time employment or have stopped looking entirely. The conditions now prevailing in the job market represent an enormous waste of human and economic potential.
The FOMC set out specific parameters to the ongoing QE3.
To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal,
The FOMC removed the old calender date for when their policies might change and instead tied their actions to a host of labor conditions, specifically an unemployment rate of 6.5%. They also tied their actions to the inflation rate. Below is the FOMC long term economic projections.
The first thing to notice is long term, the FOMC doesn't believe the U.S. will return to even 2007 pre-recession unemployment rates of 5.0%. This isn't good for in 2000, the official unemployment rate was 4.0%. Obviously the FOMC believes American labor will be suffering for years to come. The clear message from the FOMC is hiring Americans does matter, does impact the overall economy and growth, so much so labor is now officially tied to their ballooning balance sheets.
We expect to continue asset purchases until we see a substantial improvement in the outlook for the labor market, in a context of price stability. In assessing the extent of progress, the Committee will be evaluating a range of labor market indicators, including the unemployment rate, payroll employment, hours worked, and labor force participation, among others. Because increases in demand and production are normally precursors to improvements in labor market conditions, we will also be looking carefully at the pace of economic activity more broadly.
If only Congress and Wall Street would do the same, tie policy directly to the employment of America's citizens. Over and over again, the last thing mentioned in Congressional policy is tying tax rebates to the hiring and retaining of U.S. citizens. Americans are last on the list for consideration in employment and income, yet first up for destruction of their jobs, social security, pensions and social safety nets. While the Federal Reserve tied their policies to the unemployment rate, the reality is they can have little effect. As long as Congress and this administration continue to allow our trade deficit to balloon, allow employers to offshore outsource jobs, manipulate immigration policy for the purposes of labor arbitrage and not tie economic benefits of businesses directly to the people they employ, no doubt America's labor malaise will continue. From the FOMC statement:
The Committee remains concerned that, without sufficient policy cccommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions.
Below is the change in the unemployment rate from one year ago. As we can see the unemployment rate has barely broken a -1.0 percentage point reduction in a year. The FOMC did say they were paying attention to labor participation rates, which is good since the evidence is clear millions of people who need a job are not being counted as unemployed.
The Committee will also take into account the extent to which that decline was associated with increases in employment and hours worked, as opposed to (say) increases in the number of discouraged workers and falling labor participation. The Committee will also consider whether the improvement in the unemployment rate appears sustainable.
The committee stated they do not expect unemployment to go below 6.5% until mid-2015. This means the federal funds rate will stay effectively 0% until that time, at least.
The real hidden opinion in today's FOMC announcement is to America's employers. Work matters, employment matters and businesses operating in the United States, bottom line, are laying waste to America by not hiring her citizens. Good job FOMC!
The surreal increase in the Federal Reserve balance sheet will continue. The Fed will continue to buy $85 billion a month of mortgage backed securities and long term U.S. Treasury bonds. If we take this to mid 2015, it means the Federal Reserve balance sheet will expand by $2.6 trillion. If you think the Federal Reserve Bank balance sheet looks outrageous now, wait a year. That's an expansion of their balance sheet by $1.02 trillion per year, or to a whopping $5.4 trillion by mid 2015. Below is the Federal Reserve Bank balance sheet as of December 5th, 2012.
Bernanke also discussed the fiscal cliff during the press conference and requested Congress do no harm to the economy. Fat chance on that one considering we have multinational corporations lobbying Congress, complete with an agenda which is guaranteed to hurt the economy and especially American labor. Bottom line, the Fed is powerless over the corruption and craziness of Congress and is one reason we have the obscene ballooning central bank balance sheets as a counter to political corruption and policy agendas touted which are really masked national economic suicide.
We cannot offset the impact of the fiscal cliff - Bernanke
Bernanke reiterated the fiery rhetoric on the fiscal cliff and almost implored Congress to not derail the economy during the last half of the below press conference. Bernanke also noted the financial crisis really did impact the potential output of the U.S. economy. In other words, the Banksters evil doings actually negatively impacted America's long term growth by limiting everything from investment to funding advances in technology.
Below is Ben Bernanke's press conference on the FOMC actions and tis a shame only the main stream media press is allowed to ask questions.