"In fact, the labor market has been said to hold the key to downshifting on QE3 or ending it. If that is so, why not stop all the patter about monetary policy communications and put the cards on the table. The June FOMC forecast suggests that the unemployment rate won't hit the top end of the central tendency target range until 2015.
We need a more content-driven discussion of labor markets by the Fed as opposed to political apologists. Americans beyond Wall Street trading desks would surely like to know what our sharpest economic minds think about our working futures. "
The Wall Street Journal pointed to Ed Yardeni's blog entry on this very subject.
"In his prepared testimony, Bernanke said that “if a substantial part of the reductions in measured unemployment were judged to reflect cyclical declines in labor force participation rather than gains in employment, the Committee would be unlikely to view a decline in unemployment to 6-1/2 percent as a sufficient reason to raise its target for the federal funds rate.”
"Wow, that’s an important statement! It’s not hard to see that all of the drop in the unemployment rate so far can be attributed to the decline in the participation rate. I constructed three hypothetical time series showing the total number of unemployed workers by subtracting actual employment from the civilian working-age population multiplied by labor force participation rates of 63%, 65%, and 67%. This analysis shows that nearly all of the 3.6 million drop in unemployment from the peak at 15.4 million during October 2009 through June of this year can be explained by the drop in the participation rate from 65.0% to 63.5%. The same can be said for the drop in the unemployment rate from its most recent cyclical peak. Currently at 7.6%, it would be at 9.7% if the participation rate were 65%. "
"Wow, that’s an important statement! It’s not hard to see that all of the drop in the unemployment rate so far can be attributed to the decline in the participation rate. I constructed three hypothetical time series showing the total number of unemployed workers by subtracting actual employment from the civilian working-age population multiplied by labor force participation rates of 63%, 65%, and 67%. This analysis shows that nearly all of the 3.6 million drop in unemployment from the peak at 15.4 million during October 2009 through June of this year can be explained by the drop in the participation rate from 65.0% to 63.5%. The same can be said for the drop in the unemployment rate from its most recent cyclical peak. Currently at 7.6%, it would be at 9.7% if the participation rate were 65%. "
So, do you think that all the monetary policy sleight of hand has been good medicine for the labor market?
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