With the executive and legislative branches of our government being utterly useless, if not worse, the role of chief economic caretaker has defaulted to the head of the Federal Reserve System, who is Janet Yellin. She has two prime directives: (1) control inflation, and (2) control unemployment.
The "trick" is that those two directives can often conflict. The Fed's cure for high inflation is higher interest rates, which can reduce inflation but can easily slow down the economy as well, raising unemployment. Conversely, low interest rates to reduce unemployment may ignite inflation.
Since the 2009 collapse, unemployment has been a far larger problem than inflation. Janet Yellin is described as a "dove," meaning she is more concerned about unemployment than inflation. A "hawk" is more concerned with inflation than unemployment.
The unemployment indicator most favored by Chair Yellin is the JOLTS report. In that report, we find the number of "quits" each month. Because workers don't normally give up their jobs unless they think the market for their skills is strong enough that they can routinely get another job. An increasing number of quits is a good indicator. Last month, 2.74 million workers were confident enough to quit their jobs. This is the highest since 2008 and is a very good sign.
In addition, the number of job openings is now the highest since 2001 -- that is not a typo -- the highest since 2001. It is small wonder that workers feel confident enough to quit their jobs.
With the labor market looking so strong, Wall Street believes Yellin will begin increasing interest rates in the second quarter of next year. While I think it may be somewhat later than that, I don't expect the stock market to necessarily turn down as a result of the increased interest rates for two reasons: (1) it is not a surprise, and (2) the increase will be a modest quarter point.
We'll see . . .
The "trick" is that those two directives can often conflict. The Fed's cure for high inflation is higher interest rates, which can reduce inflation but can easily slow down the economy as well, raising unemployment. Conversely, low interest rates to reduce unemployment may ignite inflation.
Since the 2009 collapse, unemployment has been a far larger problem than inflation. Janet Yellin is described as a "dove," meaning she is more concerned about unemployment than inflation. A "hawk" is more concerned with inflation than unemployment.
The unemployment indicator most favored by Chair Yellin is the JOLTS report. In that report, we find the number of "quits" each month. Because workers don't normally give up their jobs unless they think the market for their skills is strong enough that they can routinely get another job. An increasing number of quits is a good indicator. Last month, 2.74 million workers were confident enough to quit their jobs. This is the highest since 2008 and is a very good sign.
In addition, the number of job openings is now the highest since 2001 -- that is not a typo -- the highest since 2001. It is small wonder that workers feel confident enough to quit their jobs.
With the labor market looking so strong, Wall Street believes Yellin will begin increasing interest rates in the second quarter of next year. While I think it may be somewhat later than that, I don't expect the stock market to necessarily turn down as a result of the increased interest rates for two reasons: (1) it is not a surprise, and (2) the increase will be a modest quarter point.
We'll see . . .
