Data certainly do not scream tighten

I am a bit too out of it to stake a strong claim on what the Fed will do at the next couple to few meetings.  I know I am “dovish” because I am adamant that the Fed needs to push inflation up beyond the 2% target before the next business cycle peak, for the reasons Ethan Harris is now emphasizing.  For this blog, I first wrote about that here.

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But the curve is pretty flat and so it is not like the idea is not out there, at least implicitly. I think the practical implication is more that this expansion still has some legs because the Fed has no case at all for killing it or even stabbing it.

Having said that, I don’t know what Bill Gross is smoking saying the odds of Sep are almost 100%. As a general point, can we stop speaking in terms of certainty, Bill Gross and Jim Rogers?

Personally I think it would be stupid of the Fed to tighten in September, largely because I don’t accept the premise that the Fed needs to tighten unless there is an obvious reason not to.

The Fed’s job is the economy, not to get rates back to some wishful-thinking-based conception of what is “normal.” We have been abnormal for eight years? Seems unlikely. Just get over that.

On today’s data, what is it about these charts that screams tighten?

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(NB: Referring to U6 as the “true” unemployment rate is ironic. It is not all that different from U3, once both are normalized to their own historical average and variance. It shows a bit more slack is all.)

Private employment growth is not horrible. Is horrible the objective?

The labor income proxy is looking pretty weak because wage growth has cooled, although not alarmingly, and because the average workweek has been grinding lower.

The unemployment rate is stable at about the estimated natural rate of unemployment, which is a case for raising rates only if you are still behind the times enough to believe in the Taylor Rule. And alternative measures of labor market slack suggests there is still some spare capacity.

Unless you have very strong priors that the Fed needs to raise rates for some silly aesthetic reason, which has been a dead loser for years now, this is no smoking gun by any means.