By Paul McCulley – My disgust reached new heights Friday a week ago, when the U.S. reported “shockingly weak” or alternatively, simply “dismal” employment growth during the month of May: only 38,000 job gains, in contrast to a monthly average increase well over 200,000 over the last two years.
Rather than focus on the existential macroeconomic cause of the disappointing data, my profession’s town barkers immediately jumped to the conclusion that the Federal Reserve had “egg on its face” in the wake of its forward guidance in the weeks prior to the data’s release, rhetorically “preparing the markets” for a hike in its policy rate this summer.
It must be noted that the hike putatively being “put in play” was lifting the Fed’s policy rate by one-quarter of a percentage point, to a level still far south of even 1 percentage point. Most ordinary people would submit that as long as we’re talking about interest rates in terms of zero-point-something, we’re talking about the moral equivalent of zero.
Yet the Fed is somehow responsible for the U.S. labor market’s sudden slowdown? And should have egg on its face?
No, the egg belongs on the face of my profession, which refuses to openly acknowledge that the economy’s existential woe is a deficiency of aggregate spending, for which fiscal policy expansion — read dramatically larger fiscal deficits — is the solution, not near-zero Fed policy rates. more> http://goo.gl/j3lMJP