Yellen’s View on Slack Labor Market Muddied by Pent-Up Wage Deflation – Bloomberg 08-25-14

Salient to Investors:

  • Mary Daly and Bart Hobijn at FRB San Francisco said during and after the 2007 recession employers left wages higher than they normally would be after a severe downturn so may not now have to offer increases to attract workers as the job market improves. They said the recoveries after the 1990 and 2001 recessions saw stagnant wage growth while the unemployment rate declined, but accelerating wage griowth once the economy reached full employment.
  • Michael Feroli said Yellen’s skepticism about the usefulness of wage growth as an indicator of labor-market slack reinforces her message that policy makers must look at a broad range of information to gauge how close the Fed is to reaching its goal of full employment.
  • Ethan Harris at Bank of America said there are serious concerns about the Fed falling behind the curve, with the Fed thinking inflation is under control, and then suddenly it is not. Harris said unemployment in the low 5s along with confidence in the economy would change the psychology of wage negotiations.

Read the full article at  http://www.bloomberg.com/news/2014-08-26/yellen-job-slack-view-muddied-by-pent-up-wage-deflation.html

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