Tougher for workers, rougher for the economy.
The employment data released today beat expectations nicely. In June the economy added 222,000 civilian jobs. April and May numbers were revised up. In total, over the past three months, nonfarm payrolls rose by 581,000 jobs.
This data will do nothing to deter the Fed from proceeding with its tightening plans. The Fed should never have cut its policy rate to zero, or kept it down that long, and it should have never engaged in QE. However, acting as lender-of-last-resort when credit froze during the Financial Crisis – when even GE and IBM had trouble borrowing to meet payroll – was essential to keep the system from collapsing. These short-term loans were not part of QE and were paid back. But the hangover of QE is still on the Fed’s balance sheet.
So I support whatever ‘normalization’ efforts the Fed might undertake. They should have happened years ago.
Among the reasons the Fed wants to ‘normalize’ policy now is to put aside some dry powder for the next recession or crisis. And it will come. Recessions are an essential part of the business cycle. If allowed to proceed, they’ll blow the cobwebs from the system, remove excess debts, and clean out the misallocation of capital – at the expense of creditors and investors. It’s a fresh start for the economy.
This post was published at Wolf Street by Wolf Richter ‘ Jul 7, 2017.