Just yesterday, I frankly shared how tired I am of hearing, talking, reading and writing about the Fed.
But one nagging question remained in my head last night as I digested the “no taper” news: Will we ever see “full employment” again?
That’s a question easily overlooked if you’re actively invested in the financial markets. After all, the Fed’s truly unprecedented policies are driving the price of risk assets higher. Some analysts call the gains illusory, or any other outrage-connoting term indicating that current prices, while real, are theoretically wrong.
Yet, as a technically-bent, trend-following trader… I see yesterday’s surge in stock prices as little more than a continuation of the current trend. I trade with the trend, until it reverses. And it hasn’t reversed yet. So let’s skip the fight over where everyone thinks the market should be priced and move on to a better speculative question: What will “full employment” mean over the next 50 years?
Here’s a chart showing a long-run average of the U.S. unemployment rate.
Since 1950, the unemployment rate has averaged around 5%.
So, is that the number Ben Bernanke eyes as he works to reach the “full employment” half of his dual mandate? If so, I think the Fed is fighting a losing battle.
First, the Fed’s stimulus has done little to heal the jobs market. We’ve talked about this before, at length. The unemployment rate has come down from 10% in October 2009 to 7.3% currently, but most of that is attributed to job seekers giving up or accepting part-time work, not finding real jobs.
Here’s another chart, clipped from the always-cynical ZeroHedge, showing the Fed’s return on its jobs growth spend:
On this count, the Fed seems uniquely ill-equipped to “fix” the unemployment problem. But who says 5% unemployment should be the goal moving forward?
A lot has changed since 1950… industrial automation has been displacing workers for years and even more disruptive technologies are on the horizon. Rather than blaming the current unemployment rate on the Great Recession (obviously the trigger but not necessarily the root cause) or the Fed’s inability to push it back in line quickly, one has to wonder if we’re witnessing a structural change – a new economy, in which fewer employees are required to produce the same volume of goods and services.
If that’s the case, it clearly suggests a bleak future for hundreds of thousands of job seekers. And it means the Fed is fighting a battle it won’t win. Sometimes it’s fun to root for the underdog (i.e., the Fed). Let’s hope this one plays out more like Rudy or The Natural than The Charge of the Light Brigade.
I wouldn’t be surprised to see the unemployment rate average closer to 7%, not 5%, over the next 50 years, whether the Fed’s foot is on the gas or not.