A Jackson Hole Sneak Preview

by: Cam Hui, CFA

As the markets anticipate Janet Yellen's keynote speech at Jackson Hole entitled "Re-Evaluating Labor Market Dynamics", I came upon this Chicago Fed publication that might offer a sneak preview of what Yellen might have to say.

The publication is entitled, "Understanding the relationship between real wage growth and labor market conditions". The abstract reads (emphasis added):

The authors find that the share of the labor force that is medium-term unemployed (five to 26 weeks unemployed) and the share working part time (less than 35 hours per week) involuntarily are strongly correlated with real wage growth. Moreover, they estimate that average real wage growth would have been between one-half of a percentage point and a full percentage point higher in June 2014 if 2005-07 labor market conditions had been restored, indicating that the slack in the jobs market still weighs heavily on the real wage prospects of U.S. workers.

Chicago Fed President Charles Evans is generally thought to be a dove and studies such as these provide more ammunition for Fed Chair Yellen to assert that you have to look beyond the headlines to assess labor market conditions. According to this Reuters report, "she'd rather fight inflation than another economic downturn" and this Chicago Fed publication is another step in that direction.

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