Fed Member Bullard Says Job Market at Equilibrium

After being dislocated over the past decade, suppliers of labor, or households, are now on the same footing as employers, St. Louis Fed President James Bullard said Friday.

“This is an appropriate situation that the Fed should not disturb,” Bullard said in a speech to the Chamber of Commerce in Springfield, Mo.

To the extent that wages and benefits rise going forward, firms will have to decide whether to hire more labor or to substitute with capital, Bullard said.

“This is an equilibrium process, not an inflationary one,” he said. Labor market outcomes are not tightly associated with inflation, he said.

Bullard, who is not a voting member on the Fed policy committee this year, has for most of this year been urging his colleagues to be cautious about further rate hikes.

In his speech, Bullard listed several reasons for caution.

For one, if the Fed continues increasing the federal funds rate and longer-term yields do not move higher, an inversion of the yield curve is possible, he said. An inverted yield curve is when short-dated yields move above long-dated yields.

This is “a reliable bearish signal” for the U.S. economy, he said.

via MarketWatch

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza