The New York Times’ editorial board has published an op-ed calling for the Federal Reserve to delay rate hikes.
In an op-ed published in Saturday’s New York Times, the editorial board wrote:
The latest jobs report showed that unemployment fell to 5.5 per cent in February and that 295,000 jobs were added to the economy. But the labour market is not as healthy as those figures might suggest …
Another sign of weakness is stagnant wage growth. In a stronger job market, competition for labour would push up wages as it pulled down unemployment. But wages have barely budged throughout the nearly six-year-old recovery …
The Fed should hold off until wages are growing in tandem with inflation and productivity. In the meantime, it should use its regulatory tools to ensure that low-interest-rate credit is put to productive uses and not speculative bubbles. Of course, Congress should do its part for job creation and economic growth — say, by financing infrastructure projects. Its inability to act is yet another reason the Fed has to get its response right.
It’s quite a statement coming from one of the most circulated newspapers in the US.
On Friday, the jobs report beat expectations, as the economy added 295,000 jobs and the unemployment rate fell to 5.5%. Following the report, some economists declared that the economy had reached the upper edge of what the Fed would consider “full employment.”
Notably, the New York Times’ Paul Krugman wrote on Friday that we ought not get too excited about a 5.5% unemployment rate, though this is, again, the upper edge of what the Fed considered NAIRU, or an unemployment rate at which inflation starts accelerating.
Krugman wrote on Friday that the Fed should wait until it sees more a meaningful acceleration in inflation to raise rates, using the example of the patience then-Fed chairman Alan Greenspan had in the 1990s. Back then, the NAIRU was believed to be around 6%, but the Greenspan Fed waited, not raising interest rates until inflation really showed up, a move that helped lead to a broad labour market expansion that saw the unemployment rate eventually dip below 4%.
Following Friday’s report, stocks and bonds both sold off as the market began to more seriously price in the possibility of the Fed raising interest rates at its meeting in June.
We’ll next hear from the Fed on March 18, when the FOMC announces its latest monetary policy decision and Fed chair Janet Yellen fields questions in a press conference following that announcement.