Wage Inflation is Finally here, and it’s Toxic for the Fed

Even uber-doves are now looking over their shoulder.

There have been all kinds of carefully phrased semi-hawkish statements emanating from carefully contained semi-hawkish Fed governors recently. Today, Dallas Fed President Robert Kaplan repeated what he has been saying for a while – that the “base case” should be three rate hikes this year, and that there could be four, warning, “if we wait to see actual inflation, we’ll be too late.”

But it’s the most fervent “doves” – when they start getting cold feet as doves – that matter the most when it comes to tightening monetary policy.

One of the most persistent, most vocal doves on the policy setting FOMC has been Minneapolis Fed President Neel Kashkari. He voted against all three rate hikes in 2017, and was vocal about why he did: inflation was too “low.”

He also does not see the asset bubbles all around us, not even the housing bubble, though other Fed governors have fretted about them. He claimed in an essay that “spotting bubbles is hard,” that even if the Fed could see them, it shouldn’t do anything to stop them because it had only “limited policy tools,” and because “the costs of making policy mistakes can be very high.”

That’s the kind of fervent dove he is. But today, he started looking over his shoulder.

There was a number in the jobs report this morning that got his attention: Average hourly earnings in January gained 2.9% year-over-year, the largest gain since June 2009, hallelujah, finally. Pressures are building up in parts of the economy, and companies are griping they cannot hire enough workers in some professions – or that they would have to pay more, God forbid, to hire them.

Pay increases at the bottom of the wage scale, where they have been sorely lacking, had a lot to do with it: In 18 states and in numerous cities, minimum wages increased on January 1. This also caused spillover effects on wages a few notches up the scale. According to the Economic Policy Institute, these new minimum wages, not counting the spill-over effects, have raised the incomes of 4.5 million workers all at once on January 1.

“The most important thing that I saw in a quick review of the jobs data is wage growth,” Kashkari told CNBC on Friday.

“We’ve been waiting for wage growth. Everyone has been declaring that we’re at maximum employment. More Americans have been coming in, which is a really good thing. But there hasn’t been much wage growth. This is one of the first signs that we’re seeing wage growth finally starting to pick up. That’s good for the public as a whole. I think it’s good for the economy overall. But I do think if wage growth continues, that could have an effect on the path of interest rates.”

The path of these interest rates is already winding uphill. For now, everyone at the Fed when they advocate for higher rates keeps repeating the qualifier, “gradual.” But so far, Kashkari has used every opportunity to vote and speak out against any and all rate hikes.

Yet the moment wages tick up, suddenly it gets his attention. It gets every Fed governor’s attention. Wage increases give them the willies.

Creating asset price inflation, including the most glorious housing bubble imaginable, became the Fed’s publicly stated policy goal under Chairman Bernanke – his infamous “wealth effect” doctrine. And consumer price inflation must always be high enough to eat up wage gains and help companies show growing revenues, but not so high that it blows down the whole house.

But wage inflation is toxic for the Fed. Wage inflation means that people get paid more for the same amount of work. A higher income due to promotions, for example, is not part of wage inflation.

So Kashkari explained to CNBC why he voted against every rate hike last year:

“We’ve been undershooting our inflation target for basically 10 years. And there has been very muted wage growth.” So to “assess supply and demand in the labor market,” you “start by looking at the price. And the price of labor – wages – had not been climbing. This jobs report now at least shows some signs of wages picking up.”

While “there might still be some slack in the labor market,” he said, “the wage measure is really important.”

In its statement after the January 31 meeting, the Fed specifically pointed at the “low” unemployment rate, and some Fed governors have said that the unemployment rate, at 4.1% for the past four months, might inch down to 3.9% by the end of the year and stay there in 2019, and that these levels would put further pressure on wages as employers might have to raise wages to attract workers.

When wage inflation picks up, the Fed steps on the brakes. Even Kashkari. While he rotated into a non-voting slot at the FOMC this year, he will be just as active during the discussions and in his public appearances. But now, even the most fervent dove is watching wage inflation with a worried eye. And if wage inflation continues to rise, expect some fireworks.

The QE Unwind is now in full swing, with a sense of urgency. No more dilly-dallying around. Read…  Fed’s QE Unwind Accelerates Sharply 
 

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  143 comments for “Wage Inflation is Finally here, and it’s Toxic for the Fed

  1. Branden
    Feb 2, 2018 at 9:00 pm

    I like the realist (cynical?) comments about the Fed’s wage growth phobia, Wolf. How and why wage inflation should give the Fed the willies seems non-sense in an economy wherin 68% of GDP is Final Household Expenditures. If anything, asset inflation should be the real indication of a bubble, with wage inflation more or less the stated goal, at least up to a point.

    • Paul Fillion
      Feb 3, 2018 at 1:05 am

      There are two ways to measure GDP, one based on income, the other based on expenditures.
      Further, I have never liked GDP as an indicator of the health of the economy.
      For example, you crash your car, get hurt, take all your savings out and borrow money to replace the car and pay for medical expenses, and GDP goes up.
      Same with dropping bombs on civilians in a half-dozen countries, ever escalating transfer payments ($2.5 trillion), ever increasing personal, corporate and government debt, and wages that have closed nearly all the factories in America.

      All GDP!

      • Tom
        Feb 3, 2018 at 8:35 am

        Perhaps if the fed raised interest rates each time the gov. raised spending it may have given the spendthrifts a bit of self control.

        • James Longstreet
          Feb 4, 2018 at 6:54 am

          Yes!
          The Fed allowed gigantic federal debt to be created by short circuiting the effects of supply and demand.
          The national debt has tripled, while rates went from 4.5% to current 1.5%. If the increase in debt had met free market forces, the amount of debt would be much less, and the asset bubbles out there much less as well.

      • alex in san jose AKA digital Detroit
        Feb 3, 2018 at 4:14 pm

        Yep the US economy looked great during the Viet Nam war, what with us coming up with bomblets that looked liked toys for kids to pick up, planes dropping napalm on villages, and whatnot.

        Everyone in electronics surplus I know who was dealing in it at that time has mentioned to me what a “golden age” it was, companies coming up with new death toys and the old stuff ending up on the surplus market.

      • Maximus Minimus
        Feb 3, 2018 at 9:12 pm

        You are correct about the uselessness of the GDP number, and there is not just one: nominal GDP, real GDP (adjusted for another fake deflator number), purchasing parity GDP. What is really missing is what counts: debt adjusted GDP. But that’s not all: GDP can also be generated by riping off the natural environment, i.e. environment Ponzi.

    • Feb 3, 2018 at 8:42 am

      Kaplan says “if we wait to see actual inflation, we’ll be too late.” #comedycentral Thank you captain obvious.
      https://fred.stlouisfed.org/series/DAXRNSA

      One could get the impression that the “full employment” mandate is just a ruse. Perhaps they want employees/labor to be fully employed, just not fully compensated.

      • Paul Fillion
        Feb 3, 2018 at 10:08 am

        The minimum HOURLY wage in the USA is significantly higher than the global median Daily wage.

        I would be interested in your rationalization of wages in the USA deserving further increases?

        Why do you think there are almost no factories left in the USA??

        Why do you think we run $500 billion plus per year trade deficit?

        The trade deficit means we EXPORT $500 billion per year of fiat money conjured out of thin air.

        How long do you think that can continue?

        What do you think happens then???????????

        • RangerOne
          Feb 3, 2018 at 11:26 am

          Wage numbers can’t simply be compared in a vacuum either. Spending power due to wages earned matters as well.

          If an American made the same dollar amount as a worker in a 3rd world country the American would have less buying power and arguably be worse off. I only say arguably because more buying power in a poorer place doesn’t necessarily mean your quality of life is better.

          It does in part make sense for a bottom rung american worker to make more, but unfortunately in a global economy that means certain goods will never be made here again, at least while we remain a wealthy nation.

        • Feb 3, 2018 at 11:32 am

          There are a lot of factories in the US, but automation and robots do a lot of the work. So manufacturing output in Dec. 2017 reached a new all-time high, but employment in manufacturing has declined over the decades.

          Here’s a chart of manufacturing output in the US:

          https://fred.stlouisfed.org/series/INDPRO

        • Paul Fillion
          Feb 3, 2018 at 11:41 am

          To RangerOne I have heard your argument many times, and it is a BS excuse from fat, overpaid, lazy Americans who produce almost nothing yet expect to live like royalty. I can buy low-end cuts of chicken and pork in America cheaper than my wife can but them in Thailand. Beer costs the same, and gasoline is more expensive there. The “cost of living” for the same living is not as much different as you think. The real issue is that they live differently.
          I have run factories both in the States and in Thailand, and have no idea how Americans justify their standard of living expectations, particularly now that most of what they consume, other than food and half their fuel, is imported.
          What do Americans PRODUCE to EARN the wealth they consume???
          That is particularly true of the lower half who, in general, have no significant education or skills, and are simply a pair of hands for doing manual tasks, like flipping burgers, stocking shelves, serving drinks, and changing bedpans.
          Do you read the monthly jobs report in detail??
          For now, imports are paid for by the exporting $US created out of thin air, and exported to the tune of over $500 billion a year.
          That is not sustainable, and will end soon.
          Then what??????

        • george mcduffee
          Feb 3, 2018 at 6:56 pm

          From some viewpoints the typical American worker may indeed be overpaid. What about American management, corporate officers, corporate directors?

        • Paul Fillion
          Feb 3, 2018 at 7:36 pm

          Good point. When I was one of them, I worked 65 hours a week plus, usually plus a lot. The “workers” got paid for 40 on average, actually “worked” a lot less than that, and were on a 4 on-4 off schedule that gave them 4 day mini vacations every 4 days. Thus they got paid for 3 days and 5 days every other week. The three day paychecks, plus ex-wives, ex-kids, wives, kids, etc. allowed them to claim benefits from the government. I was single and made twice what they did. After taxes and net of benefits, I made slightly more than they did. On an hourly basis, I made a lot less. And that is after 7 years at an expensive engineering school, during which time they had good paying jobs. So I went to Thailand, where manufacturing was on the increase, not dying as it was in the States, and got the differential pay that I figured I deserved for making a factory run well.
          So maybe I wasn’t as overpaid as many are, but getting back to your point, the compensation of public company senior officers in America is ludicrous, and the mechanism by which they sit on each others boards and award each other their pay packages is the essence of corruption and conflict of interest.
          I have no idea why it is tolerated.
          In closing, please note that the average compensation of government employees, inclusive of benefits, is twice that of the private sector people who pay their wages. (I know, they pay taxes too, poor them – arc).

        • d
          Feb 3, 2018 at 8:30 pm

          “What about American management, corporate officers, corporate directors?”

          You left Congressmen, Senators and most State, Municipal, and Federal employees, off that list of VERY HIGHLY OVERPAID. Particularly when you factor in their pensions, when they can take them, and what they regularly do (False promotion in the last weeks or months of service Etc) to goose them.

          The Taxpayer’s ROI, on Senators, Congressmen and their Staff, is to say the least. ABOMINABLE.

        • Rob D
          Feb 3, 2018 at 11:45 am

          If the end result of globalization is global pay equality, then that means there are a hell of a lot of overpriced assets in the USA.

          Hence the debt

          My two cents worth of course

        • Frederick
          Feb 3, 2018 at 11:47 am

          Paul this is exactly what I’ve been thinking How on earth are higher wages expected in the US

        • Cam
          Feb 3, 2018 at 1:42 pm

          When your currency is the global reserve and you want other countries to use it as their medium of exchange in trade (the global petroleum dollar trade in oil for example) then where do you think those dollars are come from fro do that?

          Americas largest export is the USD! If the American economy is on sound financial footing then those dollars flow back to America as direct foreign investment into your economy which should be creating jobs for Americans.

          Perhaps you would prefer all global trade to be denominated in Yuan? Some would suggest this is exactly what is going to happen.

        • Paul Fillion
          Feb 3, 2018 at 2:28 pm

          To Cam
          Very few of the exported dollars flow back and “America” doesn’t want them to. As long as they say abroad, America got something for nothing. To answer your question as to where they SHOULD get such dollars to hols as reserves? The same place they got them before America started running continuous current account deficits and had to close the gold window in 1971. They could run a trade surplus with either the US or another country that could settle in dollars, or they could sell us their gold.
          Personally, I believe in a hard currency which precludes continuously escalating mountains of debt, specifically requires a basically balanced federal budget, and have any resulting trade balances settled in gold. Exchange rates would self-adjust, stronger as a country builds gold reserves, weaker when they lost them. It all worked well, as far as I can see, from 1944 to 1965, when LBJ wanted to fight communism and poverty but only had the budget to fight one or the other.

        • JZ
          Feb 3, 2018 at 6:56 pm

          To paul Fillion, Americans do NOT need to “EARN” anything to justify the living standards. America built the strongest military in the world and controls the top tech and intelligence. America’s do NOT need to work. The rest of the world does and America consume.

        • Rates
          Feb 4, 2018 at 12:02 am

          @JZ. You are delusional. “Strongest military”? Americans got their asses handed to them in Vietnam. With the exception of the first Iraq war, Americans haven’t been able to win. If we’ve won in Afghanistan and Iraq, then why the hell are we still there?

          Did you even know the military is having the hardest time recruiting? They actually had to resort to Hollywood propaganda i.e. Pitch Perfect 3 in order to drum up recruitment and last I’ve heard, people still ain’t interested.

          Top tech and intelligence? Please. Haven’t you heard? Our CPUs have serious security related bugs. WTF? We are also BEHIND in quantum computers. Our cities look ancient compared to cities in East Asia. The public transport system barely works. As a couple of expats in YouTube have mentioned about countries like Japan : “shit just works here”. If our intelligence is so great then how the hell did we get into 9/11 in the first place?

          America is a land of delusion. That’s all. It’s waiting for the other shoe to drop.

        • JZ
          Feb 4, 2018 at 2:37 pm

          Rates, the strength of US military should NOT be judged by any conventional sense of “winning”. The objective of US military is simply to “create chaos and break regime apart”. Iraq is like 3 pieces now. IS wants to let the war be for ever, NO solution and let the opposite sides punch each other so that US can “help” which ever side that gives US the price. This obejective has been consistently achieved. This unlike “the goal of war is to end wars”.
          So if you think about US military has NEVER been successful, you are from the conventional point of war definition. US does NOT want to finish any war and win. US wants them to pay, at a price US wants so that US consumers can stay home and consume without having to “earn” anything.

        • JK
          Feb 5, 2018 at 11:00 am

          For ever or until China backs its currency with gold.

        • Ger
          Feb 5, 2018 at 10:03 pm

          My goodness! You certainly seem eager to improve the health of the wconomy by pushing the American people into absolute destitution. How dare the American workingman even think he has a right to a better life than a wage slave in Bangladesh or Pakistan. If people eat more than 3 times a week, do they have it too good? If they have anything other than cardboard or plywood over their heads, they have it too good? Do they have it too good if they have shoes instead of rags on their feet. You seem to have forgotten what America is all about. We dont have huge debtsbecause the people have it too good but because of the monstrous tax breaks we have given to those who dont need them. Why not excuse the rich from taxes altogether. End the social safety net altogether? Surely the excess deaths would do the economy a world of good by reducing the surplus population. Do you really hate America that much? If you are from the American upper classes, are you trying to create a worldwide socialist revolution. Maybe you should read up on your Marx a little.

          You kind of horrify me.

          He Who Walks Behind The Rows

        • Paul Fillion
          Feb 5, 2018 at 10:36 pm

          On a sustainable basis, a group of people have, collectively, an amount of wealth to consume equal to the wealth they produce.

          It was largely wage inflation (and free trade, etc.) that drove American manufacturing offshore.

          Yes, Wolf claims that manufacturing is at an all-time high now by way of automation, etc., and that may be so if it refers to autos assembled from major subassemblies made elsewhere and bolted into sheet metal bodies made and painted by robots, processed food, and I don’t know what else, but how many “Made in America” labels have you seen lately???

          I am not saying that Americans should not live well, just that they should earn their standard of living by producing wealth at a comparable rate to what they consume, and they are not doing that as is reflected by the current account deficit (trade deficit plus), escalating levels of debt (borrowing consumption from the future), and diminishing real net worth.

          To produce more wealth domestically requires things like logging, mining, and manufacturing. Wages are already too high for much of that to go on in the USA.

          Printing money and exporting it is not a sustainable model.

          And finally, not everybody in the world are Americans, only about 4%?

          So kindly explain to me why you think they should have a minimum wage that is ten times more than the people that make their clothes, electronics, etc.???

          I have run factories in both Asia and the USA, and given a choice, would prefer Asian workers even if they were paid the same as Americans.

          Your delusions of superiority and entitlement are becoming difficult to maintain as post WWII “special circumstances” unwind.

          OK, at the end of WWII the US was the only developed country that had not been bombed into the stone age and was 25% of global GDP.

          Factories were producing at 100% capacity as anything not used domestically could be exported.

          America created unimaginable wealth for the next 25 years.

          Now, things have changed a lot.

          It is not the 50’s and 60’s anymore.

          And the American worker is not what he/she used to be either.

          On average, obese, poorly motivated and poorly educated, they are not matched to the needs of high tech, automated industry.

          Most are just a pair of hands looking for something to do, like flip burgers, stock shelves, serve food or mix drinks or change bedpans (as per BLS jobs reports).

          And on a global basis, a pair of hands does not produce enough to warrant an $8 or more minimum hourly wage.

          If they did, there would be no poverty in the world as we know it today.

    • cdr
      Feb 3, 2018 at 9:36 am

      Save your effort. The Fed, and all central banks, and probably most economists, are more theologians than anything else. They could easily debate the economics equivalent of how many angels could dance on the head of a pin, and probably use PhD level math to support the argument. Simply because the Fed follows mainstream theology does not make it more accurate. All branches of economics are mostly nonsense. Each exists only to present a particular point of view and sell the book of their patrons. Including the Fed. Econ 101 contains most of what anyone needs to know on the subject. An economics minor in college would create an expert.

      And about the Phillips Curve, the icon of wage theory vs inflation – Massive nonsense. Jobs don’t create inflation, therefore comparing job numbers to inflation rates is nonsense. Income in excess of available items to spend it on creates inflation. Income comes from LABOR and CAPITAL. Abnormally low interest rates remove income from capital from the equation, unless you substitute asset bubbles – which aren’t income until the accounts are ‘cashed out’ – and most never are – a few cash out while the rest lose most of their ‘savings’ when the bubble blows. If you tried to explain that to an ‘economist’ you would receive total dismissiveness in reply, if that much. Against their theological beliefs.

      If inflation is appearing, it’s because rates are rising a little and more income is flowing through the economy. Not because a few low paying jobs are starting to pay a little better.

      • cdr
        Feb 3, 2018 at 9:57 am

        Oh, you might say – there’s cost-push inflation and demand-pull inflation (ignoring currency debasement inflation).

        Yes, rising wages will raise costs and might cause prices to rise to compensate. But wait … consider economies of scale … where production costs decline as quantity increases. But- you say – what about diminishing returns? Well, I say, what about investment growth, as in building new plants and equipment? Winner winner chicken dinner.

        You might reply “what’s that?? … how can you do a stock buyback from that kind of investment?” Well Bunky, that’s the way investment used to be done before globalist economics (low rates, open boarders, low wages, flexible labor sources, replace income from savings with income from asset bubbles) became so popular.

        That being said, any reason to raise rates is a good one. If the Fed wants to make up any reason to do it, then I’m with them. But remember, just because they’re doing the right thing, they’re doing it by accident.

      • Gibbon1
        Feb 3, 2018 at 2:01 pm

        > …Unless you substitute asset bubbles – which aren’t income until the accounts are ‘cashed out’ – and most never are – a few cash out while the rest lose most of their ‘savings’ when the bubble blows

        Ah yes the wealth effect, the idea that if peoples paper assets increase in price than they’ll borrow money and spend it, thus creating ‘lift off’. Offhand thought other than auto’s most consumer credit is via high interest credit cards. Pretty obvious that the effect of high interest credit on future demand is strongly negative.

        J6P puts $1000 on a credit card and never pays it off, thus permeability reducing his spending by $250/year forever.

        • Gibbon1
          Feb 3, 2018 at 2:02 pm

          Damn auto-correct, permanently reducing his spending by $250/year forever.

        • cdr
          Feb 3, 2018 at 2:38 pm

          Gibbon1,

          You get it! Economics is simple. You just demonstrated it. No PhD needed.

          The real challenge with economics is figuring out what someone is really trying to accomplish. What the major thinkers say is almost never what they really want to do. Maybe Adam Smith was on point. The current bunch running central banks and trying to influence governments or the famous pundits are charlatans selling the book of their patrons. Lots of secondary ‘experts’ are really only good at reciting the catechism of their sect.

          The old saying “follow the money” works for trying to figure out the real game of the gurus of economics and who their patrons are. If you figure out who is going to be enriched you then can figure out how their plan works and who the money is ultimately coming from to enrich the beneficiaries. Everybody gaining by working together is a rarity. The US MIGHT be doing it today, but only by accident and only if rates continue to rise.

    • Joan of Arc
      Feb 3, 2018 at 12:10 pm

      Billions and trillions of dollars, or, in other words, cake for the rich…nothing for the hoi polloi or serfs. You can say what you want to about Marie Antoinette, but at least she was willing to let the serfs eat some cake, and they paid her back by sending her to the guillotine. That is why no one today is willing to provide cake for the poor, it doesn’t pay off.

      • Nick Kelly
        Feb 3, 2018 at 3:24 pm

        Most people don’t realize she wasn’t being sarcastic or unfeeling. She just thought there was a shortage of bread and thought they could make do with cake for a day or two. She had no idea what anything cost and that bread was all the poor could afford.

        • alex in san jose AKA digital Detroit
          Feb 3, 2018 at 4:20 pm

          My understanding was that “cake” meant some sort of waste grain, left over from the baking process, but it turns out Marie Antoinette probably never said it in the first place.

          https://en.wikipedia.org/wiki/Let_them_eat_cake

      • cdr
        Feb 3, 2018 at 3:28 pm

        “That is why no one today is willing to provide cake for the poor, it doesn’t pay off”

        What’s the payback on that cake? There isn’t one …. screw them. Sounds like charity.

  2. Kiers
    Feb 2, 2018 at 9:10 pm

    Another reason for “wage” increases: new tax code is incenting companies to convert compensation from stock options to salary. (high end and low end).

    Good point: Inflation in assets = “Fed see no evil”.
    Inflation in Egyptian cotton pima lint emanating from their navel = Fed inflation.

  3. d
    Feb 2, 2018 at 9:24 pm

    The Offical US unemployment rate # is BS.

    However even a small amount of wage growth, might move some of the MASSES of uncounted unemployed, back into Job seeking.

    The FED dosent need to scream on with interest rate rises, once it reaches 3%. it has 4 Trillion $ worth of assets to dispose off, before it needs to do that.

    Those Sheet reductions will start to have an effect in the real economy once they grow a little probably May/June 2018. Junk bond’s will be the first to really show it.

    Short dated T’s @3% return, and capital return guaranteed, are a lot more attractive than a lot of the junk out there.

    • Gibbon1
      Feb 2, 2018 at 10:05 pm

      > The Offical US unemployment rate # is BS.

      Only short term, less than two year, changes in the US unemployment rate are meaningful. The actual number is totally meaningless.

      The guys at the Fed are idiots if they can’t see that. Or lying horrible people if they can.

      Here thought experiment: Which would you rather have. 6% unemployment with employment to population ratio of 90% or 3% unemployment with a employment to population ratio of 80%.

      Yeah thought so.

      > Junk bond’s will be the first to really show it.

      Point, who’d going to buy that stuff if not the Fed.

      • d
        Feb 2, 2018 at 10:43 pm

        “Only short term, less than two year, changes in the US unemployment rate are meaningful. The actual number is totally meaningless.”

        ” The actual number is totally meaningless.”

        So i f the real # is 4 – 10 – 20% it dosent matter?

        Bit like republican deficits don’t matter, until on day they will.

        “Here thought experiment: Which would you rather have. 6% unemployment with employment to population ratio of 90% or 3% unemployment with a employment to population ratio of 80%.”

        So You dont want truth in Statistics, just mind games. The US UE #’S are like the OFFICIAL US inflation Numbers. Which Wolf among others will tell you, are PURE BS.

        Any person who wants a JOB at a FAIR rate of pay, and can not get one, is UNEMPLOYED. Just not officially, in the US.

        “Junk bond’s will be the first to really show it.

        Point, who’d going to buy that stuff if not the Fed.”

        Contrary to common belief of FED haters. The FED does not buy corporate bonds of any type, with out lots of prior announcement, and the involvement of congress.

        Something to do with maintaining STABILITY of the US $.

        • Gibbon1
          Feb 3, 2018 at 2:12 pm

          > So i f the real # is 4 – 10 – 20% it dosent matter?

          The point is like most economic terms, the name is a total lie.

          Labeling that statistic ‘unemployment rate’ is a lie. What that statistic is is an estimate of people that lost or quit jobs in the last year divided by the number of people with official jobs.

          It’s a measure of employment ‘churn’

          It’s possible to have an economy with a lot of churn that is otherwise running just fine. And one with little churn that generally sucks.

      • Paul Fillion
        Feb 3, 2018 at 1:09 am

        By “population ratio” I assume you mean the labor participation rate??
        It is something like 62% now, lowest since 1970 or so!

        • d
          Feb 3, 2018 at 1:32 am

          Lowest since 1970 participation rate, and less than 4% unemployment rate dont mesh. At least you can see that.

          At least in the US if you pour over the Stats for long enough, Govt BS gets Exposed.

        • Lance Manly
          Feb 3, 2018 at 6:23 am

          You guys do understand that the main cause for the lower LFPR is the demographics of the baby boom retiring, right? If you really wanted to increase employment attacking the opioid crisis would be a good place to start. BTW, Germany has a 60% LFPR Zimbabwe 80%, which do you think is doing better economically?

        • d
          Feb 3, 2018 at 4:25 pm

          “You guys do understand that the main cause for the lower LFPR is the demographics of the baby boom retiring, right?”

          That Meme was debunked as the garbage it is. long ago.

          Most of the peopl who come here are intrested in REAL fact’s not your Alternative facts. AKA BS.

        • george mcduffee
          Feb 3, 2018 at 6:23 pm

          Just a reminder.

          The LFPR numbers are only for employment in the legal economy.

          Non-participation in the official economy does not mean the individual is living a life of leisure, but rather is most likely working in the unofficial sector.

          The individuals employed in the casual sector [and their employers] pay no payroll/FICA, income, or other taxes, and has no OSHA, Workman’s comp, or wage/hour protection. When the time comes, and it always does, the taxpayers in the formal economy will pay.

        • ZeroBrain
          Feb 3, 2018 at 7:11 am

          Lance Manly – We’re talking employment population ratio. Link is here: https://en.wikipedia.org/wiki/Employment-to-population_ratio

          It is the percentage of *working age population* and it’s way down. So no, it’s not just demographics by any stretch.

        • Timthetiny
          Feb 4, 2018 at 12:16 am

          Which it should be. It was unsustainably high.

  4. TIMOTHY J MCLEAN
    Feb 2, 2018 at 9:32 pm

    I know all markets are different, but in my Florida market wage inflation has to be above 5%. That said, my developer clients have elected to sell income producing assets over the past 3 months. I think this asset bubble has peaked.

    • Max Power
      Feb 3, 2018 at 9:13 am

      Yep, from personal experience I can say that it is definitely significantly more difficult to find newhires now, both on the low as well as high end of occupations. You know that this sort of situation has to eventually affect wages.

      • d
        Feb 3, 2018 at 4:28 pm

        You will also find when wages rise. Many skilled peopel will “return” to the workforce.

  5. Lee Blockchain
    Feb 2, 2018 at 9:37 pm

    Mr. Bernanke said we wouldn’t see normalized rates (4-5% Fed fund rate?) in his lifetime. Talk about a rock and a hard place, prop up asset prices or slow wage inflation.

  6. Feb 2, 2018 at 9:39 pm

    Well, we all know what comes next. The Fed’s policies were directed toward creating stock and asset inflation for a chimera called the wealth effect but when the working and middle classes, the basis of any nations wealth, begins to make a bit more money then it’s time to take away the punchbowl. Today’s stock selloff was just a harbinger..

    • kiers
      Feb 2, 2018 at 10:39 pm

      not so much a matter of “time to take away the punchbowl”, the economy is B-R-O-K-E-N, and the stupid gnomes don’t know how to fix it! Capacity utilization never rises above 80%. Prior to our politician’s discovery of communist china as a labor pool, that used to be 90%.

      Today, Half the S&P 500, today can not meet their weighted average cost of capital, ie. they are destroying value. Think about that in a rising rate environment!

      • kiers
        Feb 2, 2018 at 10:41 pm

        The punch bowl take-away is more b/c the Fed is sweating bricks so that they have “ammo” to use in the next depression.

        • d
          Feb 2, 2018 at 10:47 pm

          “next depression.” ???????????

          For the Majority of Society. The 2008 Recession/Depression HAS NOT ENDED YET.

          No matter what the #’s buoyed up buy the inflation of paper assets and housing say.

      • Feb 3, 2018 at 12:17 am

        It wasn’t our politicians who discovered slave labor but the titans of industry. GE’s Jack Welch is lauded for eliminating 100,000 American jobs and his successor, Immelt, tossed off 40,000 more. From the 1970’s onward I watched American companies leave and every time an iconic company left I used to think, this is the one that will finally break the camel’s back. That never happened because we all took on more debt, not to keep up with the Jones’, but because we working folks always thought that things would get better but with active collusion between industry, capital, and for rent government, it has finally brought us to this place.

        • Ed
          Feb 4, 2018 at 1:34 pm

          I would argue that the factory closings were initiated by our own LBO practices. Besides, who has the major air pollution problems now?

  7. Night-Train
    Feb 2, 2018 at 9:57 pm

    Apparently something is wrong if the regular guy gets a break. Glad the Fed doves are on the case.

    • polecat
      Feb 3, 2018 at 6:13 pm

      I have but two questions:

      1) What’s the labor participation rate as it pertains to Fed chairpersons & governors … and 2) What are inflationary pressures with regard to THEIR recompense ??

  8. JZ
    Feb 2, 2018 at 10:18 pm

    Wage inflation? Why? Oh, right. Previously, when the Fed shower money, all the corporations and wall street need to do is to go to shower. There was NO need for R&D, investment, NO need to compete. Now the FED had to stop showering money because they can NOT do it forever, these wall street guys have to transfer wealth from each other and the CEOs can NO longer borrow money and buy back stocks, they have to start to compete. Hiring the talent, damn it, raise salary and hire the best!, build new products, increase market share, kill each other.
    The tide has ebbed. When the FED is out, these CEOs and fund managers have to transfer from each other or transfer from the mass.

  9. george mcduffee
    Feb 2, 2018 at 10:19 pm

    One man’s wage inflation is another man’s long overdue and inadequate raise.

    If “inflation” is a problem, and I question that it is after so many wolf calls, why not attack the source rather than again bleeding the blue and white collar workers dry, by significantly increasing taxes on speculation profits by reducing/eliminating the capital gains deduction, and imposing a financial transaction [Tobin] tax.

    • d
      Feb 3, 2018 at 12:43 am

      “and imposing a financial transaction [Tobin] tax”

      Tobin tax.Removes opne of the last Legal avenue’s, for the small unemployed guy, willing to take risk, to try and make some lunch money.

      As the taxes, based on the entire transaction value. Will be more than the margin he makes on the trade.

      More TAXES ARE NOT THE ANSWER, to many TAXES ARE THE PROBLEM.

      • Mike G
        Feb 3, 2018 at 5:14 pm

        How many small unemployed guys do you imagine are doing high-frequency stock trading?

        • Paul Fillion
          Feb 3, 2018 at 8:27 pm

          You are correct. I retired early, basically unemployed by choice as what is available to me in the labor market is not of interest to me. I have never HFTed. I played stocks, but they got boring. Unhedged, highly leveraged futures are what the wife and I do now. Never a dull moment.

    • Nick Kelly
      Feb 3, 2018 at 10:08 am

      There is the question of whether a raise forced by minimum wage law is a reflection of real wage inflation.
      For example, the employer could refuse a corresponding raise to a more skilled employee, explaining: “I had to give the newbie that much’
      In Ontario one owner of a small eatery said of the soon- to- be 15$ minimum, “that’s what we pay our line cook, if we give newbie 15, does he get 25?

      Real wage inflation should bump all rungs up, not sure moving the minimum up will do that.

    • Crazy Chester
      Feb 3, 2018 at 2:34 pm

      I hated to see you shouted down for being right. A tax on stock transactions (and thus speculation indirectly) has clearly been the answer for a long time yet rarely enters the conversation. The idea is sold poorly. And some people cannot get past the word ‘tax’. But the truth of the matter is a large percentage of stock trades are made by foreign entities. If you presented the idea as a very narrow remedy with 50% of such tax going directly against the national debt and the other 50% of such tax paying for our healthcare in some form or fashion and took it to the next level by saying, truthfully, that foreigners would be paying a large percentage of our debt and our healthcare, then perhaps you might find an audience. This is not a new idea (calling it a Tobin tax is confusing and misleading). We had a stock transactional tax after World War II. It worked. It brought down the deficit. Would it drive stock trades to other markets? Doubtful. People forget we spend an enormous sum policing the ocean water ways to ensure free trade against piracy. So a small recouping of these costs by our stock markets in the protection of free trade is a very sensible tax by the policeman of world trade via the high seas. And if you bring down the cost of debt and you bring down the cost of healthcare you have truly given wages more power – call it an increase if you like – in our economy.

  10. EH
    Feb 2, 2018 at 10:39 pm

    I wonder if QT will significantly amplify the effect of rate hike….

    • timbers
      Feb 3, 2018 at 12:46 am

      The thing is, zero interest rates didn’t produce “inflation” as the Fed measured it. In fact you couldn’t be blamed for saying it suppressed “inflation”.

      So I’m gonna say the inverse is true: Fed QT and interest rate increase will INCREASE “inflation.”

      I fully prepared to be wrong.

      • Marko
        Feb 3, 2018 at 9:36 am

        timbers, this is an interesting theory. It could workout in the following way.

        If I’m a business owner and interest rates start to go up, my borrowing expenses go up, so I raise the fees I charge my clients.

        • JZ
          Feb 3, 2018 at 3:30 pm

          You have to consider both the supply side and demand side. You want to raise price but can you? Will there still be buyers when their purchasing power is killed by QT since they can NO longer borrow against their houses?
          First you have to clarify whether it is wage or CPI or asset inflation that is being discussed.
          For CPI you argue about supply and demand. For wage, you argue about pricing power of capital vs labor. For asset, you argue about E, P/E, rate and EPS.

  11. Paulo
    Feb 2, 2018 at 10:42 pm

    Inflation too low??!!

    I guess these experts haven’t shopped for a family lately, tried to buy a home, or scrounge up rent; God forbid, maybe pay for their own lunch?

    I just got back from trip to Victoria BC for my wife’s medical appointment with a neurologist as follow-up for a leg injury. The only good thing about the two day excursion into hell (we live in the country) was not having to pay for the medical appointment. Lunch out at a chain restaurant, $34.00 for two skimpy burgers, one tea, and one glass of water. We bought supper (pizza) for 5 adults (we picked up) to include ample leftovers for the working kid’s lunch the next day….$100. We stayed overnight at sister-in-law’s rented farm house and was shocked to admit the two adult wage earners and rent payers are inexorably stuck firmly in the class of ‘working poor’. (Yet, they are both department managers in different grocery stores). They are also trying to build a house ‘up-Island’ but are now realizing the proposed builder mortgage is a debt sentence until death shows up. They are also realizing their pension arrangements (similar to US 401 K) is actually pretty much a pipe dream and totally inadequate. No inflation? Wage increases? hah.

    Meanwhile, my wife and I fall behind every month with our term deposits and RRIFs. We should have got into the borrowing binge and lived large I guess. Oh well, we are set to buy when prices drop. Maybe.

    I was pleased to see the 666 DOW drop today. I hope it continues until sane realization destroys the myth of a ‘healthy economy’. When actual benefits are demanded and finally reach regular working people the sooner this class warfare of the 1% on the rest of society will be seen for what it is. Unfortunately, it is going to hurt and scare people to their very core.

    hmmmm, I didn’t hear anyone taking credit for the drop today? I wonder whose fault it is going to be?

    Come on Fed, raise those rates already.

    regards

    • Max Power
      Feb 3, 2018 at 9:18 am

      Consider yourself lucky. Here in the US that neurology consult would have probably cost a small fortune, and heaven forbid if he or she followed up with an MRI or something.

    • Feb 3, 2018 at 10:56 am

      The myth that any economy presents is precious to those who live it.

    • Paul Fillion
      Feb 3, 2018 at 12:26 pm

      How many people in the world do you think can take such trips, stay in hotels, eat at pizza joints, and contribute to retirement savings plans?
      You are very, very lucky, and don’t even realize it.

      • Paulo
        Feb 3, 2018 at 5:00 pm

        Paul F

        Of course I realize how lucky I am, and must question why you would make such a comment?

        You also have no appreciation of the sacrifices both my wife and I have made to get where we are in life. We also give thanks, everyday.

        We are also extremely fortunate to live in Canada with a decent medical system. We also pay much higher taxes here, in the North, and lucky that our Country does not waste billions per year on our military, ‘saving the world’. Instead, it deems healthcare to be a human right. We pay for it with every pay cheque deduction. As for personal travelling, we don’t. Instead, we choose to live a low-impact lifestyle; built our own home with local lumber (my sweat) and grow/catch most of our food. (The medical trip was deemed necessary because my wife has been a type one diabetic for 45 years and her ‘system’ is always tracked for her health outcomes.) We bought the ‘restaurant’ food because we never freeload and wanting to pay (of sorts) for our bed. Plus, eating regular is somewhat crucial for Type 1s.

        Don’t always assume the worst when you read between the lines. I found your comment quite offensive and totally inappropriate for the circumstances and our situation.

        regards

        • Paul Fillion
          Feb 3, 2018 at 8:47 pm

          It was not meant to offend, but to open your eyes. When I was younger, I spent a year in Mexico. More recently, 20 years in Thailand with excursions to Cambodia, Laos, etc. I was fluent in Castilian Spanish when I went to Mexico and became fluent in Thai during the first few years there, so I can and do interact with the “locals”. (In fact, I communicate with my wife and all our friends in Thai, as we live in an area of few westerners, and even fewer that I wish to associate with.)
          My point is that you complain about how hard you have worked to get what you have when you appear to have no comprehension that most of the world labors long and hard to be able to afford enough calories to labor long and hard the next day.
          Living in Canada, you have no idea how hard most of the world works for what they get.
          No idea whatsoever.
          Just as an example, Cambodia has 11 million people now, about the same number as they had before a fourth of the population died under the Khmer Rouge. 800,000 of those people work in the garment industry, almost all women. Until recently, they were making $60 a month! Please don’t tell me about the “lower cost of living there”. I am buying chicken, pork and beef cheaper in Maine than my wife can buy them in Thailand. Electricity and gasoline cost more there than here. Beer costs the same, etc. They have doubled their wages in the last few years, and I am glad for them.
          Personally, I think people like you should have to pay more, a lot more, for the clothes you wear so their wages can improve further.
          Not only do you not appreciate what you have, you don’t understand how hard others work for nearly nothing to provide it to you.
          Before rebutting this, please check your wardrobe and let me know how many of your clothes and shoes/boots etc. were made in North America by people earning wages comparable to your own?

        • Anonymous.1
          Feb 3, 2018 at 11:15 pm

          You don’t have to explain yourself.

        • kitten lopez
          Feb 4, 2018 at 6:48 pm

          daaaaaamn! Paolo threw down the mic! i love watching you Canadians finally get mad, even politely.

          but Paul, i think Paulo is arguing for a decent life for all, not just the few; and Paul- your comment saying “it could be worse” is dangerous because it’s dismissive and condescending to ALL to say be happy with crumbs, you could be a child prostitute in bangkok! yeah…if that’s the barometer of when we get to scream and rage against unfairness, then we’re vaporized toast.

        • Renters are actually human
          Feb 5, 2018 at 2:20 pm

          What Anonymous.1 and kitten lopez wrote. Hugs to you and your honey.

  12. Bobber
    Feb 2, 2018 at 11:16 pm

    With wages and interest rates rising, corporate profits will take a hit. These factors greatly outweigh the tax cuts.

    it’s not a good time to be in the stock market, as was evidenced for the first time today. We will likely see more follow though on these losses in coming weeks/months. I don’t think the Fed will worry about stock market ups and downs until stocks are down 10-20% across the board. The Fed needs to take some froth out of the market. The future doesn’t get much clearer than it is right now. The past has been so lopsided, there is only one way for markets to get into balance from here.

  13. Guido
    Feb 3, 2018 at 12:16 am

    Aren’t these employment numbers based partly on insufficient data and a lot on models with seasonal adjustments thrown in to smoothen the data? How many times have we seen the data revised 3 months out?

    While I wouldn’t rate Kashkari very highly on his IQ, I wouldn’t rule out his propensity to play the role he’s assigned. This man cannot see an asset bubble when it was poking him in the eye but he suddenly can divine an increase in the report, and that too from one data point? That is, he cannot see a pattern spanning half a decade and counting but one data point is enough for him to come to a decision? I just don’t buy that this man is an independent thinker.

    I think the fed is going to exit and this is bit actors coming onto the stage and regurgitating what they’ve been asked to state. One can wonder why these shenanigans now? If any of these entities ever used a semblance of logic, we can divine something from outside. Remember how Greenspan, the wiseman, waited too long to increase rates? I think they are just trying not to make the same mistake again. Or it could be some things their masters told them to get done.

  14. timbers
    Feb 3, 2018 at 12:37 am

    How about this instead:

    “There was a number in the STOCK MARKET report this morning that got his attention: Average STOCK PRICES in January gained 2.9% year-over-year, the largest gain since June 2009, hallelujah, finally. Pressures are building up in parts of the economy…….”

    ……prompting Fed members to clammer for accelerated interest rate increases and QE unwind….

  15. mean chicken
    Feb 3, 2018 at 12:37 am

    Almost sounds like the numbers are pulled from thin air. Anyway, should we be surprised to hear there’s huge concern given wage growth has been stagnant for 30 years?

    Meanwhile the asset strippers go unfettered.

  16. Harvey Cotton
    Feb 3, 2018 at 12:56 am

    The S&P 500 loses 2% of its value on news of a 9 cent raise for the average worker. If the United States had an opposition party, this would be a terrific issue to wedge Trump on. Which side are YOU going to support?

  17. Nicko2
    Feb 3, 2018 at 6:23 am

    Projected four interest rate hikes coming this year. It’s going to get crazy.

  18. Petunia
    Feb 3, 2018 at 7:57 am

    If the Dallas Fed Chairman wants to see inflation he should go to Austin, TX and look at the tent cities growing there. Someone we know was recently there and said the homeless problem was worse than the homeless problem in Miami.

    Wages up, I don’t think so.

    • mean chicken
      Feb 3, 2018 at 12:05 pm

      Tight labor market indeed!

  19. Al Loco
    Feb 3, 2018 at 9:20 am

    Does rising rates contribute to wage growth? I hope it does for this reason. I had a conversation yesterday with a super nice co-worker. She is stressed out because she is losing her roommate and having trouble finding a new one. She does not appear to live beyond her means but cannot afford shelter in the Chicago suburbs. I actually shared Wolf’s recent rent data and convinced her to use it as ammo to possibly negotiate a new lease that may appear out of her budget into something that is. Would rising rates eventually suppress the housing bubble bringing rents back in line across the board?

    • Feb 3, 2018 at 9:49 am

      I expect higher rates to eventually impact home prices. Home prices move slowly. At first, you should see a decline in volume. And then, when homeowners have to sell, you’ll see a decline in prices. Last time we had a Financial Crisis, which accelerated everything, it still took four years.

      But when volume slows down and properties sit and sit, a shrewd buyer might be able to make a deal when encountering a motivated seller.

      Rents should also be impacted, but they follow a different dynamic. In the Chicago area especially, if you find a motivated landlord, you should be able to make a deal.

      • cdr
        Feb 3, 2018 at 3:16 pm

        “I expect higher rates to eventually impact home prices.”

        Disagree, unless mortgage rates rise to past 7% or even higher.

        Higher general interest rates translate to higher personal income … at least over time. Higher rates frustrate the fast buck crowd. They’ll say anything to keep rates low. Their repetition becomes a part of the economic catechism. That catechism becomes ‘what everyone knows’.

        Higher rates actually translate to higher personal income. Much of this income will be spent. This will cause the economy to expand. Some of it will go towards housing. Rates that are excessively high, Volkers level high, are a problem.

        The Fed has destroyed the concept of savings and replaced it with ‘wealth creation via bank policy’, aka asset bubbles in equities. Few people capture asset inflation wealth. They buy and hold because the financial services industry has convinced them to do this. Even Bernanke stated it was intended to fool people into spending current income because ‘wealth’ was being created in asset markets. He didn’t use the word ‘fool’ but, I believe, the remark is accurately translated.

        Please wait for really high rates to make assumptions like this. In Europe, this argument will be used, I expect, to keep rates negative. Anything higher will ruin everything good and pure.

        • Feb 3, 2018 at 5:10 pm

          So if I understand you correctly, the logic is this: Repressing policy rates to near zero and getting mortgage rates to fall to just above the rate of CPI caused the current housing bubbles. And then when rates rise, the higher rates continue to cause the current housing bubble. Have your cake and eat it too, no?

        • Paul Fillion
          Feb 3, 2018 at 8:21 pm

          Most people buy the most house they can afford. Thus, ANY increase or decrease in mortgage rates will have an effect on demand, and therefore prices, of homes.

        • Paul Fillion
          Feb 3, 2018 at 8:51 pm

          Most people buy what they can afford, or a bit more. Thus any change in mortgage rates has a profound effect on the demand side of the real estate market, and therefore on the equilibrium home prices.

        • cdr
          Feb 4, 2018 at 4:33 pm

          “. And then when rates rise, the higher rates continue to cause the current housing bubble. ”

          I can’t speak to your California or west coast housing bubble. Or the Canadian one or the Chinese induced ones.

          I live in a small town in the Midwest. No housing bubble here. Just slowly rising home prices.

          Bubbles do what bubbles do. Here, in the Heartland, I think housing prices will rise a lot more before the fall, as long as income rises. Income from rising rates will help this along.

    • mean chicken
      Feb 3, 2018 at 11:25 am

      Whatever happens, the landlord cannot begin taking losses via negotiating low rents.

      • d
        Feb 3, 2018 at 4:50 pm

        Says WHO???

        Many rental properties require a top up every month Just to make the Mortgage payment.

        Before you consider rates Insurances taxes Etc.

        What you allude to is that the Corporate REIT model.

        Is no longer tenable.

        Which is why many REIT’S when through or tried to IPO’S recently.

        Look to some spectacular Bankruptcies in that area soon.

    • d
      Feb 3, 2018 at 4:32 pm

      This is why it is getting harder to find staff.

      They can not afford to live close enough to the work, to afford to do it.

      Rents and transport costs MUST go down, or wages MUST go up, a lot, to alleviate this situation.

  20. R cohn
    Feb 3, 2018 at 9:36 am

    The Fed is not happy that their policies have not had much of an effect on equity prices,on junk bonds and on yield spreads
    Expect this to change as QT increases and the ECB tapers dramatically,resulting in considerably higher long term rates and a stock market crash because of the “short volatility “structure of a number of investment products

  21. no_free_lunch
    Feb 3, 2018 at 10:06 am

    Let’s cut to the chase. The Fed, like most agents of the gov’t. was spawned in the dark side of humanity; from the lust for money, power and control. All of this is clear when viewed through the lens of Progressive/Socialist theory. After all, Keynes was a Socialist as well. The idea that someone “smarter than I” can turn the knobs and pull the levers without causing irreparable harm to a nation’s economy is pure hubris and very dangerous. The Fed was conjured out of thin air in 1913, as “lender of last resort”, with promises of financial utopia. However, the Great Depression soon followed less than 20 years later. So much for promises.

    Let us again return our economies to free markets and sound money, without interventions, machinations and financial repression. Markets need “creative destruction” and price discovery. Until then, we can expect catastrophes from time-to-time; all riding in the whims of the banking cartel. For now, we’ll remain slaves to the very visible hand of this cabal of snakes and liars. End the Fed.

    Adam Smith had the right idea…

    “It is the highest impertinence and presumption… in kings and ministers, to pretend to watch over the economy of private people, and to restrain their expense… They are themselves always, and without any exception, the greatest spendthrifts in the society. Let them look well after their own expense, and they may safely trust private people with theirs. If their own extravagance does not ruin the state, that of their subjects never will.” – The Wealth Of Nations, Book II, Chapter III, p.346, para. 36.

    “The statesman who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.” – The Wealth Of Nations, Book IV, Chapter II, p. 456, para. 10.

    “Every individual… neither intends to promote the public interest, nor knows how much he is promoting it… he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.” – The Wealth Of Nations, Book IV, Chapter II, p. 456, para. 9.

  22. Feb 3, 2018 at 11:10 am

    The Fed and their list of superfluous benchmarks leads me to say et tu’? There is no NORMAL in rates, so get over that. The dollar is under pressure, as a matter of POLICY. They have to soften that a bit, and make the US (bond)-(stock) market attractive in order to fund new issuance to make room for the balance sheet dump.
    Yellen also wants to give Powell some room to lower rates if the need arises, this is SOP. So two real good reasons, and one phony benchmark. Powell will back off the rate hikes, Yellen will be vilified in the past tense. Begin QE4 and while potus says America first, the Powell Fed will become a real GLOBAL central bank, and buy stocks, and automobiles and Florida RE (probably his). He will leave with the Deep State even more firmly in charge of things.

  23. EJK
    Feb 3, 2018 at 11:35 am

    Riddle me this one Wolf. If one visits the BLS website looks at me he raw data and crunches the numbers you can see that wages were in fact DOWN in January? How is this? The average hourly earning is a ratio of wages divided by hours. Hours DECLINED from 34.5 to 34.3. Wages DECLINED from 919.425 to 917.182. So do the math and you will see that average hourly earnings did in fact go up but not due to wage pressures but a larger decline in hours worked than decline in wages. If I can do this on a Saturday morning at the gym in between sets the Fed clearly knows this but want the narrative to be as such that they are worried about wage inflation that really isn’t there (according to the data). What are they really trying to accomplish? What are they worried about? With the decline in wages, decline in hours worked and abysmal productivity numbers released coupled with energy, housing and healthcare inflation the pressure on the consumer will create a very tenuous situation. Just my read on it.

    • Feb 3, 2018 at 11:46 am

      You’re making up your own formulas on the way to the gym. And that’s certainly fun. But here is the chart for average hourly wages, and they’re up 2.88% from a year ago:

      https://fred.stlouisfed.org/series/CES0500000003

      • ridingthewildhorse
        Feb 3, 2018 at 12:42 pm

        Ah, again the difference between the economics of Wall Street and the economics of Main Street.

        The Fed and Wall Street considers a 2.88% increase in wages “significant” . But Main Street sees a 2.88% increase in wages AND a 2.13% increase in inflation – for a real income change of about 0.75% – and that dime or quarter extra per hour in real gains is just not all that “significant” to them. Anyone understand why Main Street doesn’t understand what the fuss over “wage inflation” is all about?

        • EJK
          Feb 3, 2018 at 4:00 pm

          Wages went DOWN not up (see prior message for the data or see for yourself at https://www.bls.gov/ces/ ). If you consider the decrease of average weekly wages coupled with the inflation in energy, housing and healthcare costs one can see how the consumer is in a corner.

      • Thomas R Kauser
        Feb 3, 2018 at 1:04 pm

        Front loader delivered the goods early and often! The good part of the dart board was the only part untouched and swing for the fences BABE TRUMP!

      • Feb 3, 2018 at 6:40 pm

        Hi Wolf, I was going to tag THIS COMMENT at the end, but your “average hourly wages, and they’re up 2.88% from a year ago” informed me where to put this rather succinct observation :

        ASSET PRICE INFLATION – along with “earnings” inflation for the 1% ( not WAGES, exactly ) are to da moon Alice — but let the proles get 2.88% over the last year, and that’s worrisome for the elitist FED, huh ?

        Seriously ? ? ? If ever there was an example of the “Let them eat cake” kind of disconnectedness, this is it. In spades.

        https://www.oftwominds.com/blogjan18/rowboat-yacht1-18.html

        The Republicrats have historically represented the interests of the one percent — and since Reagan — the Demicans have become elitists, carrying water for the Ultra-rich on the Vineyard and the Hamptons, and for the Banks, and the Hollywood know-nothing elites. Not a dime’s worth of difference bwtween the R-s and the D-s, now, if there ever was.

        That’s why we have Trump now . . . . . I would have voted for Bernie because he messaged the concerns of the proles, better. Proles like me.

      • Smingles
        Feb 5, 2018 at 1:08 pm

        You’re talking about different things.

        Average hourly wages are up 2.9% YoY. However, total weekly hours worked are down 2.9% from January 2017. If weekly total hours worked weren’t down so much, average hourly wages would have barely budged. There is no serious wage inflation there.

        On a total earnings basis, average weekly earnings are up 2.6% YoY. But they decreased from December to January (919 to 917 as pointed out by EJK). A 2.6% YoY figure is very weak in the context of sub-5% unemployment; there are no signs of impending serious wage inflation, and that 2.6% YoY number is actually trending down from Fall 2017. I suspect GDP, wages, and a number of other data sets probably peaked after the hurricanes, due to rebuilding/repurchasing activity that has now subsided.

        Oh, and by the way, we’re talking NOMINAL wage growth here.

        REAL wage growth was up 0.6% for 2017. It peaked in 2015 at about 2%. https://fred.stlouisfed.org/graph/?g=i3jo

        So the story here is that real wage growth has been declining since 2015, despite a supposedly strong labor market, and the Fed is becoming more hawkish… despite no actual evidence that inflation or growth are anywhere near robust, or set to pick up.

        The cherry picked media narrative is wage growth strongest since 2009.

    • Paul Fillion
      Feb 3, 2018 at 11:55 am

      Good point. Between your observation, and Wolf’s note that minimum wages increased in 18 states due to legislation, not inflation, the concept of wage pressure is pretty much killed.

      I would add another point: When hours worked are reduced, that is almost exclusively lower paid hourly workers. The higher paid salaried people don’t get hours reduced. That by itself would increase the average hourly compensation, and again, has absolutely nothing to do with inflation, unemployment or wage pressure.

    • Paul Fillion
      Feb 3, 2018 at 12:33 pm

      You make a great point. I would LOVE to know how much of the reduction in hours worked occurred in the 18 states and assorted cities that had new, higher minimum wages come into effect the first of the year?? Just a note, but the minimum wage in Thailand nearly doubled about 4 years ago after the last populist PM was elected. She, like her older brother who is also an ex-PM, are both on the run to avoid being thrown in jail, but that is not my point. Most people in Thailand get the minimum wage. Within 6 months – a year after the new higher wages went into effect, the prices of foods and many other things doubled.
      Lots of people incurred more debt when their wages doubled, and now, most people are worse off than they were before.

      • Petunia
        Feb 3, 2018 at 12:52 pm

        There was an article the other day saying the Fakebook guy was going to do an experiment with universal income in Stockton, CA (a notorious ghetto for those who don’t know). He was going to give a random sample of residents $500 a month for a year or two(can’t remember which). Buying votes? Buying survival?

        • alex in san jose AKA digital Detroit
          Feb 3, 2018 at 4:39 pm

          $500/mo. isn’t a wage, it’s buy-off money or something. If you want to experiment with universal income, make it with $3k a month or so. You know, the “living wage” talked about that allows someone to live in a normal place, support a spouse, etc.

          A lot of you are mentioning what makes this proletarian cringe about minimum wage increases: If the min. wage goes up, well, prices will just go up. And for example, CEO’s “take” will just go up, to preserve that 600X or whatever it is ratio between their “take” and the average worker’s pay. As much as I’d like to see it, a min. wage increase won’t put more housing on the market, just increase the cost of existing housing. It will only increase the cost of Kraft dinner, 40 oz. malt liquors, ciggies, gasoline (which is always priced according to “what the market will bear”) and other essentials of proletarian life.

          What needs to change is the ratio of earning between the proletarians and the oligarchs.

    • Paul Fillion
      Feb 3, 2018 at 8:11 pm

      Yes, in response to this and your other post that does not have a “Reply” button under it, most people are struggling. However, your list of reasons does not include the largest single factor why, which is servicing debt that was incurred trying to live a lifestyle beyond what their income affords.
      My family and I probably live better than most people spending twice what we do.
      However, we have never had a mortgage, car payment, revolving debt on a credit card…..and a lower need for disposable income translates into a MUCH lower need for pre-tax income.
      Many people who spend twice what we spend have to earn three times as much to have twice as much to spend after all taxes are paid.

      • james wordsworth
        Feb 4, 2018 at 8:41 am

        You don’t know how lucky you are. If everyone lived like you (and I ) do then we would not be able to live like we do. It is their excessive spending and accumulation of debt that pays for the relatively elevated standard of living in our countries (Thailand included). If everyone lived within or below their means there would be massive unemployment, homelessness, scientific advancement, infrastructure etc. (but of course far less pollution and environmental destruction). We live on on planet and no matter how virtuous or hard working you are you are tied in some ways to what others around you do. No man is an island totally responsible for their own fate.

        (Oh and while you are comparing the price of chicken in Maine with Thailand, understand that US chicken production is what one should call factory produced – and yes Thailand has its factory chicken as well, but that is not likely what you are buying at the local market. How about comparing the price and quality of vegetables and fruit or the cost of a meal at a street stand. American food is barely “food” being so heavily processed. At least in Thailand you can at least – the last time I was up country – find fresh tasty “real” food.)

        • d
          Feb 4, 2018 at 3:37 pm

          “If everyone lived within or below their means there would be massive unemployment, homelessness,”

          Until the system re-balanced.

          The Capitalist system has been turned into a Consumerist system, by the Globalised Vampire Corporates, allied with china.

          This Consumerist systemis based in an ever increasing population of Consumers and ever increasing Credit. IT IS UNTENABLE.

          Among other issues there are to many humans on the planet.

          This is also part of the problem.

          An organised pull back from this Consumerist system, is the answer.

          Those that do not wish to cooperate, must be made to, or humanity will cease to exist. Simple.

  24. Maximus Minimus
    Feb 3, 2018 at 12:00 pm

    I wonder, is it hard to write about such challenged individuals like Kashkari, and keep your cool?
    In the meantime, the stock market drops by 666 points, which is so negligible in percentage that it doesn’t even trigger the circuit breakers.

    • Thomas R Kauser
      Feb 3, 2018 at 12:59 pm

      Blue, blue Monday! Blue Monday and btfd! Funds are not going to wait around for the individual to get religion , that boat sailed long ago! Stock to the average consumer is broth? A good 5-8% (already touched 5% intraday) correction and like Beck says, giddy-up! As good as January was only a fool would miss the backside rally?

    • Frederick
      Feb 4, 2018 at 12:26 am

      666 points? Nice

      • d
        Feb 4, 2018 at 4:22 am

        Actually it was 665.4(? on the point #);.

        I made a lot on the dropping S & P I dont do the Dow.

  25. EJK
    Feb 3, 2018 at 12:07 pm

    Wolf, I don’t disagree with your number. The statistic is wages divided by avg hours worked per week. You can view the raw data here but wages did go down December to January:

    https://data.bls.gov/pdq/SurveyOutputServlet

    • EJK
      Feb 3, 2018 at 12:25 pm

      Here is the right link for data. All of it can be found on right hand side of page:

      https://www.bls.gov/ces/

  26. Robert
    Feb 3, 2018 at 12:45 pm

    The cure for Kashkari and the like is to put them in jail for 10 years on a constant-dollar diet.(A charitable judge might just order a 10-year salary freeze) Since he regards inflation as invisible, presumably he won’t notice that he is getting 10% smaller meals every year.

    • Feb 3, 2018 at 1:06 pm

      and don’t forget: the ingredients in his meals will get 10% crappier every year :-]

  27. Thomas R Kauser
    Feb 3, 2018 at 12:51 pm

    Lucky the price of kool aid powder hasn’t gone up like ground beef, my favorite is grape!

  28. Heinrich Leopold
    Feb 3, 2018 at 12:52 pm

    Actually wages did not increase, hours worked decreased. As the average earnings are calculated by dividing weekly earnings by hours worked, the earnings per hour increased. The recent numbers are in my view shockingly depressive. I am not sure what kind of game the Fed is actually playing, yet trying to find a reason for hiking rates at any costs can easily back fire by plunging the economy back into recession.

  29. gorbachov
    Feb 3, 2018 at 1:50 pm

    Most people I talk to say they are having trouble finding

    labor in America.One manager got hell when an employee

    got recruited elsewhere.They were pissed cause now the only way

    to fill that job is to pay more than current workers earn. Now

    everyone else will get a raise .Good news for the working stiffs.

    • Guido
      Feb 3, 2018 at 2:26 pm

      Managers tend to hire people who have done similar kind of work elsewhere, which is why the employee you mention got poached. Very few will go out of their way to hire and train for the longer term, unless the job itself is for unskilled labor or the work was something that used to be outsourced before countries like India became expensive.

      But the Question is about general employment. I don’t think the employers are going out of their way to hire and train people for the longer term. The consensus seems to be that this boom is in the end stage. Why would an employer go hire for longer term if they hear ‘recession’?

      I am a bit skeptical about bls data. As Seinfeld would put it, ‘who are these companies that are suddenly selling so many goods that they need to start hiring every which way? Who are the people who have suddenly come into money to spend so much?’

      Did the rents drop?No. Did we all get a raise? Some got bonuses but I haven’t heard of people getting raises. So where is the wealth effect that’s causing people to spend? If it is the bonuses and tax returns that’s causing them to spend, how sustainable is this inflation that the economists are slobbering about?

      My take is that the numbers are fudged. They’ll need to regress to mean pretty soon — otherwise everybody on the face of earth needs to be employed for their numbers to be correct — and You’ll see a drop in employment and inflation. This is assuming bls is cooking.

      • Rejected By Target
        Feb 3, 2018 at 7:58 pm

        “Managers tend to hire people who have done similar kind of work elsewhere”–

        Managers have gotten into the mindset that, in order to be successful in a job, you must have held that identical job in your recent work history, and not many people will want to switch companies for what equates to a lateral move. Making matters worse, most companies hire using a screwed up piece of crap called an ATS, where the applicant uploads a text-only resume and an algorithm “analyzes” it. It scans not only for keywords but also looks at your TITLES at your previous jobs. If your previous titles are not identical to the job you’re applying for, the algorithm rejects you. I learned this by accident when I was rejected for a “graphic artist” job when I applied with my “graphic designer” resume (for those who don’t know, they’re the same thing). I also got rejected when I applied for some clerical/admin jobs (jobs I had done for years before switching to design), it didn’t matter that I could type 140wpm or was “proficient in MS Office.” When the hiring manager sees a strange title on your resume so vastly different than “administrative assistant” their brain just can’t handle it (so they program their ATS to reject). This could also explain the wage stagnation issue, people aren’t moving up into higher paying roles as much because of this “past title must match the title of the job opening” nonsense.

    • alex in san jose AKA digital Detroit
      Feb 3, 2018 at 4:42 pm

      I’m not sure what part of the US you live in. Good jobs are scarce and only gotten through connections where I am.

      • Rejected By Target
        Feb 3, 2018 at 7:26 pm

        It’s the same here in the northeast (MA/RI), cronyism rules. About a year ago I was watching a news story about migrants from Africa risking their lives to cross the Mediterranean to get to Europe. They interviewed one guy, asking him why he was doing this, he said he wants to find work and it’s impossible to find work in his native Mali, he got quite irate as he explained how fed up he was with “having to know somebody to get a job, or, if you don’t know somebody hiring, then you must know somebody who knows somebody…” I snickered to myself, gee, that sounds like America. My mom comes from Macedonia, I’ve been there many times, the job market there is the same thing, “you’ve gotta know somebody” (which is why just about everyone tries to leave at some point).

        Btw, I really wish folks who want to “understand” the whole unemployment issue would actually talk to some unemployed people. Besides myself I can introduce you to several in my LinkedIn network who have been searching for five years (one systems analyst with a PhD, two structural engineers, so it’s nothing to do with a “skills gap”) — and none of us can get hired by the Targets/Walmarts because we’re a “flight risk” — “you’ll quit as soon as something better comes along.” Spend some time reading the Indeed forum, start with the “Frustrated Job Seeker’s Thread” which at 33,000 posts is still growing…or how about this one, brand new thread–
        https://www.indeed.com/forum/gen/Career-Advice/MS-can-t-find-job-3-years-Need-advice/t563111 — he’s applied to 1,200+ jobs to no avail (the sickest part about his new job market is that over 1,000 applications is now the norm, and let me tell you it’s very difficult to not let that kind of rejection affect your psyche)…

      • Paul Fillion
        Feb 3, 2018 at 7:56 pm

        Right now I am in northern Maine, near where there used to be a factory that I managed. It doesn’t matter who you know or what your education and experience are, there are no good jobs here anymore. I am having the trees cut off my land, selling it, and investing in Thailand. Also making tons of money shorting the $US. Who do I blame? I blame most people as they are too stupid to know what to vote for.

      • george mcduffee
        Feb 3, 2018 at 8:13 pm

        Have your friends contacted your state employment agency?

        These state agencies can provide pre-screaned and dexterity tested candidates, and AFAIK do not charge for this service. It may take a few iterations to define what types of employees you are seeking. The more specific you are in defining your needs the more accurately the candidates can be screened. The only problem is the candidates may not be as white or macho male as you would desire.

  30. VFR Peter
    Feb 3, 2018 at 2:46 pm

    Just my five cents on it. So when a highly paid executive takes hundreds of millions from a company, which the business then can’t invest in jobs or new fixed assets or to reduce debt, and the exec spends it on superyachts and jets, it’s not seen as inflation. But when the same firm pays their workers more money, which in the grand scheme of things maybe more or less in dollar terms the same as the “bonus” the executive was paid, then this is seen as inflationary? Wages will improve the workers lot and go back in the economy in rents, food and spending as the poor don’t tend to send it off shore as much as executives!

    The end result is that the firm still lost the money, either to one person or to many. But one is seen as bad, leading to higher inflation and interest rates need to go up, and the other as totally ok and no affect on inflation and hence interest rates. I wonder which group the Fed people fall into and therefore how it might be viewed by them??

    And before anyone accuses me of being a raging commi, I am a graduate in Economics, ex accountant and have my own business. So I can hardly be seen as one of the downtrodden so to speak. I have done very nicely thank you but I do find it absurd how spending money on staff in one way is ok but another is not. And yes, economics is all based on assumptions and “facts” that we now know are at best suspect and at worse, downright lies and made up to fit a point trying to be made.

    But as I say, just my humble and probably totally wrong thoughts on the matter.

    • Paul Fillion
      Feb 3, 2018 at 7:48 pm

      Kindly note that even the CEO is an employee of the company.
      I never said they were not overpaid.
      However, also please note that they are, by virtue of their education and experience, not just another pair of hands.
      The conversation started by comparing the compensation of low end workers in the States compared to elsewhere. Executive compensation is another subject, but not much different, as you point out.

  31. Renters are actually human
    Feb 3, 2018 at 5:27 pm

    But so far, Kashkari has used every opportunity to vote and speak out against any and all rate hikes.

    Oh my, just looked at Neel Kashkari’s Wiki page, uugh.

    And, a subjective impression, that chilling (to my mind) ‘gaze’ in his photo – which brings another ‘upper caste’ marionettist to mind, Jeff Bezos – would likely have the majority of the US poverty ridden populace arrested on suspicion of dangerous intent and/or insanity.

  32. QQQBall
    Feb 3, 2018 at 5:42 pm

    ahhh not so fast… how many private sector employees in 2005 and how many now. Gubbermint has simple re-giggled the numbers.

    For some folks, its just not worth re-rentering laborforce due to free ACA with zero deductible and zero out of pocket, plus other bennies. Before the P-lady jumps on me for disparaging the poor, who are victims to her; this is simply a $ and cents choice… net net, it is better to not work, particularly if you can scam a disability insurance claim. If there is wage pressure, it is modest and will be short-lived.

    • Petunia
      Feb 3, 2018 at 7:17 pm

      I only care about the genuinely poor. It might surprise you to know that I think the whole opioid crisis is a bunch of BS. Most of them know being a drug addict is the easiest way to get disability, food stamps, healthcare, and housing. It is very easy to test positive when you need to, they even give you the drugs. A few of them may be the real thing, but many are not.

      • Feb 3, 2018 at 7:57 pm

        Are the 160 or so daily deaths that ARE REPORTED as being due to opioid abuse — due to, as you say that “being a drug addict is the easiest way to get disability, food stamps, healthcare, and housing”.

        I don’t know for sure that what you say is true, or even that there are 160 actual deaths, daily — but I know that the overhead associated with Opioid Abuse, that being death — is a cost not worth welfare benefits/government assistance. There’s gotta be a safer way to get free benefits . . . .

        https://www.vox.com/policy-and-politics/2017/6/6/15743986/opioid-epidemic-overdose-deaths-2016

        • Paul Fillion
          Feb 3, 2018 at 8:58 pm

          I believe the numbers were a shocking 32,000 for 2015, and recently the numbers for 2016 came out at an even more amazing 42,000. The growth rate is incredible! I have been a bit out of the loop on this. I thought heroin addiction was a problem that pretty much went away after the Vietnam War ended.
          I have seen, but don’t remember offhand, the percentage of Americans on some sort of pain medication and it is again, mind boggling, like 25% of adults????

    • Renters are actually human
      Feb 3, 2018 at 9:38 pm

      Sorry, but given your comments, you don’t appear to know anything about Social Security Disability Income [SSDI]. Most importantly you don’t even know that SSDI recipients are receiving funds based on Social Security/Medicare taxes they’ve actually already paid themselves?

      I know people on Social Security Disability who are unable to work fulltime, if at all. I do hope no one you know and love, including yourself, ever ends up needing it and then discovers firsthand: many who need it can’t get on it (for reasons ranging from under resourced State Reviews, to negligence, to malicious judges), it’s not at all an easy process (and certainly, at least for a decade or more, not kind), many give up because they can’t afford attorneys; the vast majority who do get on it are living financially impoverished lives you can’t imagine, in addition to being denigrated by those such as yourself.

      Lastly, whatever scammers there are, they don’t even begin to approach the Income Tax Scams (some now legalized) of the wealthy; I know, because I witnessed more than a few of those scams and scammers.

  33. Overunder
    Feb 3, 2018 at 10:05 pm

    Since the inflation was created by minimum wage increases I wonder why the Fed (and other central banks), don’t encourage YEARLY manadatory wage increases to get them to their mythical 2%, ‘ideal’ inflation rate.

    Could have saved Japan decades of pumping out cheap money!

    A cynic would say that the minimum wage increases are occuring because of the Feds policies of inflating various bubbles. But no reasonable person could assume such mendacity.

    • d
      Feb 3, 2018 at 10:35 pm

      Pumping wages in a country like Japan without other legitimate drivers, is a waste of time, as the recipients, will simply save it.

      The BOJ and the administration of both sides, understand this.

  34. Rattlemullet
    Feb 4, 2018 at 8:56 am

    Wow so many financial experts with so many expert opinions. Who is right and who is wrong I am certain you all know that each of you are wrong or right depending on if your judging your self. Only all of you could steer the economy everything would work out economically for all. All your opinions would fit well onto the Paul Ryan power point chart. “More money for us fuck you.”

    But simply stated with the devaluation of labor through out my life time has demonstrated to me that the best business model is slave labor. Transferring most manufacturing jobs to machines and world wide cheap labor is really nothing more than trying to regain the slave labor business model. Lower and lower wages to masses of unemployed idle workers is keeping inflation low and CEO and share holed values high. All American corporations made conscious decisions to move the factories to China at first and else where when labor proves cheaper.

    A union meat cutter in 1972 received 12 dollars per hour now there is no union and the meat cutter earns less in 2018. Was it not St Ronnie that said to attract good people to government you needed to pay them more money?

    May be all you experts can tell me why giving money to help the rich is better than giving money to help the poor. Use the tax payer money for the bail out to Wall Street as an illustration to justify your answer.

  35. Captain Kirk
    Feb 4, 2018 at 9:26 pm

    So we have a one month substantial increase in wages and suddenly the sky is falling? I think the real story here is that markets are overbought.

    https://tradingeconomics.com/united-states/wage-growth

    Core CPI is still tame and average weekly hours subdued.

    https://tradingeconomics.com/united-states/core-inflation-rate

    https://tradingeconomics.com/united-states/average-weekly-hours

    Wage inflation does not spell ‘price inflation’. We are in an era of overcapacity and slave labor China can easily stock US shelves with junky goods without their prices going up. Minimum wage hikes do not an economy make and they don’t mean GDP is increasing. The trump tax cut is fully priced into everything now and it’s likely the economy will roll over.

    So there’s the market hype and the reality which might spell wage inflation for a month or two. If the markets crash hard enough the next fed statement will be subdued and the markets will rally. Markets are likely tumbling on the false belief that rate increases might be higher than expected ( hence unexpected changes in the risk adjusted rates for stocks and the security market line)

    The economy will falter in the next six months as markets rally on the prospect of stalling of rate increases.

  36. Christoph Weise
    Feb 5, 2018 at 2:00 am

    Some of the comments are really interesting but it is tough to sift through them and make sense of it. Too bad there is not a software that structures the relevant comments and produces a “response” article to the original version. That could make a real discussion possible between author and readers.

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