Dont Expect Job Data Alone to Persuade Fed on Rates Article

Dont Expect Job Data Alone to Persuade Fed on Rates - Article Example The short-term unemployment rate or the proportion of people remained jobless for 15 weeks has declined to 3.1 percent; however, this figure is still higher than the figure of the prerecession period. One more important consideration is labor's share of income in the nonfinancial corporate sector, which is measured by the Bureau of Labor Statistics each quarter. For comparison, it should be noted that the labor's share of income has remained between 61 and 66 percent right from 1950 through the early 2000s; that is currently ruling at 57.1 percent – much below 60 percent registered in 2005. Thus, Yellen is more concerned with the people who have fallen behind. Lower interest rate helps boost demand because consumers tend to spend more rather than saving or holding it. Moreover, the cost of borrowing is low helping businesses to invest and create employment; lower mortgage helps spur growth in construction because the interest burden on home buyers is minimal. In short, lower interest rate helps increase aggregate demand within the economy that in turn, boosts business activities reducing prevailing unemployment rates and that is what the Fed is attempting to do. In view of this, it is clear that until the job market improves on all parameters –unemployment rates and the labor’s share of income, there is a little scope of the interest rates getting revised upwards by the Fed. The Fed would like to observe the job market data for several quarters to come before making any upward revision of interest rates.