And other reasons for the Fed to hang fire.

Originally published June 20, 2008

The BLS reported a sharp jump in state unemployment rates this morning, further evidence of a slackening job market. That, plus the performance of capacity utilization, suggests that the Fed is likely to hang fire for months to come – especially since gas prices seem to be doing a lot of their tightening work for them.

STATE EMPLOYMENT
The big news in the June 6 BLS release on national employment was the big jump in the unemployment rate.  We’ve been waiting for the last two weeks to see if there were some regional anomalies in the increase, but we need look no further than the first sentence of the summary in this morning’s BLS release on state and local employment trends. "Virtually all regional and state jobless rates increased in May."  It’s an ugly table: Thirty-seven states reported statistically significant  increases in unemployment, and only one state, Louisiana, reported a decline.  The Midwest saw the biggest jump, +0.8 points, and the Northeast, South and West all posted gains of .5 points, right in line with the 0.5 increase reported for the nation as a whole in early June.

The state establishment survey put in a stronger performance. Bucking the national trend, employment rose in 30 states in May, and total state employment rose by 30,000 (vs. a national payroll decline of 49,000). But that follows a decline of 142,000 in total state employment in April (vs. -28,000 nationally). Over the two months, the decline in total employment exceeds the national decline by 35,000. Yearly growth in the sum-of-the-states measure is now 0.3%, slightly ahead of the 0.2% rate for the national establishment survey.

Originally published June 10, 2008

One of us heard Dallas Fed president Richard Fisher’s presentation at the Council on Foreign Relations this morning. Fisher was unsurprisingly hawkish on inflation – he said several times and in several different ways that no central bank can "countenance" a rise in inflation. He was worried that when the U.S. economy recovers from this case of "anemia" (he prefers that term to "recession"), it will start expanding with inflation at an uncomfortably high level. When asked if his colleagues shared his concerns – if, as the questioner put it, the Fed had the "character" to raise rates with the economy still sluggish, as it did in the Volcker years, he answered by saying that he had the highest respect for his colleagues. He praised Bernanke and Geithner several times, and professed his admiration for Jean-Claude Trichet as well.

Originally published November 28, 2007

Fed vice-chair Donald Kohn spoke at the Council on Foreign Relations in New York this morning, in a session moderated by Laurence Meyer. Kohn’s prepared remarks are on the Fed’s website at:

http://www.federalreserve.gov/newsevents/speech/kohn20071128a.htm

Unsurprisingly, the text reads mostly like a standard one the one hand/on the other analysis of the sort that caused Harry Truman to demand a one-handed economist. Though Kohn would never win any public speaking awards, there were some subtleties in the delivery that might be meaningful. For example, he drew out the reading of this sentence, as if for emphasis: "Some broader repricing of risk is not surprising or unwelcome in the wake of unusually thin rewards for risk taking in several types of credit over recent years." And he emphasized the starred words in the following passage: "Consequently, we might expect a **moderate** adjustment in the availability of credit to these key spending sectors….  Heightened concerns about larger losses at financial institutions now reflected in various markets have depressed equity prices and **could** induce more intermediaries to adopt a more defensive posture in granting credit, not only for house purchases, but for other uses a well." These emphases suggest that Kohn – who emphasized he was speaking for himself only and not his colleagues – holds a less alarmist view of things than do many market participants.