Seeking Alpha

Lowering unemployment threshold under discussion at Fed

  • "Fed officials have been discussing for several months whether to lower the unemployment threshold as a way to convince markets that they will keep short-term interest rates low for a long time," writes Jon Hilsenrath, joining the chatter begun yesterday by Goldman's Jan Hatzius, who suggests the Fed is set to lower to 6% from 6.5% the unemployment rate threshold at which it would begin hiking the Fed Funds rate.
  • Hilsenrath also refers to a recent Fed research paper positing unemployment would fall faster if the central bank promised to keep rates near zero for longer.
  • The San Francisco Fed's John Williams is skeptical, telling an audience a lower threshold wouldn't tell anybody anything they don't already know.
  • Treasurys (TLT -0.2%) seem to like the idea, the 10-year yield falling 3 bps to 2.64%.
  • Long-duration Treasury ETFs: TBT, TLT, TMV, TBF, EDV, TTT, TMF, ZROZ, TLH, SBND, DLBS, VGLT, UBT, TLO, FSA, LBND, TENZ, TYBS, DLBL.
Comments (7)
  • But the 10-year yield is down and stocks are up on Hilsenrath's chatter rather than on an actual Fed President's! This looks a little too much like confirmation bias in the markets.
    6 Nov 2013, 11:29 AM Reply Like
  • What goes up must come down.Seems like San Fran's about got it.
    6 Nov 2013, 11:31 AM Reply Like
  • How about letting interest rates reach a competitive normal point... so people with savings accounts feel comfortable spending. Then watch the economy accelerate. This has reached a drug induced environment. It's not longer healthy, as everything hangs on news & it's effect on taper... Undoing the drug is difficult environment is difficult... but confidence at this point will come out of ending the image of needing this crutch.
    6 Nov 2013, 11:32 AM Reply Like
  • I agree with you but the reason why politicians and Fed officers have trouble with that is that they personally will have to relinquish a lot of the power that they yield right now. You are talking about reduced fiscal deficits and an end to QE. QE is, after all, the tool the Federal Reserve uses to help keep interest rates where they are at. Without any form of QE, interest rates would revert to normal.

     

    While normalized rates would be the best thing for the long term health of the economy, again, politicians would lose their ability to pick winners and losers. That power is what they sought after when running for office. Take that away and all their campaigning was in vain. Politicians will not relinquish control without a fight. Politics has been like this for the past 2000+ years though. Nothing new.
    6 Nov 2013, 11:50 AM Reply Like
  • "Politics has been like this for the past 2000+ years though. Nothing new." Sad but true. I would like to think "nothing new", but Im not so sure anymore. The buffoons that are posing as politicians, will never come together to do whats best for America.
    Its now about protecting the elite and controlling the masses. We have seen many times over the last 2000 years that sometimes these events don't end nicely. Whats it going to take to change politics for the better ??
    6 Nov 2013, 01:23 PM Reply Like
  • Land of M & H,

     

    You're absolutely right that the economy needs more spending now. In testimony to the Congress over the past few years, Bernanke has pleaded for (and almost begged for) more fiscal policy stimulus (e.g., more spending now.) He's made it clear, that it is otherwise the Fed's responsibility to do more monetary stimulus and keep interest rates low. Almost all economists (and Bernanke too) recognize that QE is a poor substitute for more fiscal policy stimulus, but it is better than nothing when the economy is so slow to recover and is needed to offset contractionary forces such as state and local governments slashing their payrolls.

     

    If you want to see an end to QE and return to normal interest rates, then join in supporting more temporary and targeted fiscal stimulus (e.g., the President's jobs bills) and supporting an end to the short term spending cuts (e.g., sequester.) (Spending cuts for the future are needed to contend with the problem of long run budget deficits, but are wrong for now when the priority should be to get idle workers, plant, and equipment back to work.)
    7 Nov 2013, 12:10 PM Reply Like
  • @Herb

     

    While I see your plan & it's value, I'm not sure I agree. Debit is also worrying & keeping businesses from action & people from spending. QE's done what it could. Taper it down. Stop the head games (when will it be, what's going to happen). A healthier stable (non-head game) environment at this point with slow growth will give signals that it's okay to go back to normal. Then spending can come from interest earned in bank accounts. That can't happen till QE is done for a while. But we've got to get there.

     

    Balancing on two toes on one foot, while touching ones nose... is no substitute for just running the race, slowly at first but with both feet on the ground. Just my IMHO.
    7 Nov 2013, 06:29 PM Reply Like
DJIA (DIA) S&P 500 (SPY)