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Fed’s unemployment target is unrealistic

This is a syndicated repost courtesy of Sober Look. To view original, click here. Reposted with permission.

The Fed’s goals for the US longer term unemployment levels are simply unrealistic and will force the central bank to prolong its easing programs beyond what is really needed for economic growth. This misguided approach will be damaging to the economic growth in years to come.  Here is what the FOMC is projecting for the “longer run” unemployment – a rate that is in the 5%-6% range.

Source: Credit Suisse

As discussed in this post, the Beveridge curve clearly shows that the US had a structural shift in employment dynamics after the financial crisis. What was considered the “equilibrium” unemployment (also called “natural” unemployment) rate needs to be adjusted upward. A more realistic unemployment goal should be in the 6%-7% range, a much more achievable target.

Robert Gordon from Northwestern (via Market Watch): –  “I think more realistically that, gradually, [unemployment] equilibrium will move from 5% to 7%,” he said. He says that fits with anecdotes of businesses finding difficulty in hiring workers with the right skills, and with skills eroding from the long-term unemployed.

When Ben Bernanke referred to current unemployment picture (at Jackson Hole) as “a grave concern” that causes great suffering, he was right. But unfortunately that is the “new normal” and the Fed won’t be able to push it materially lower than this new equilibrium level. However it may do a great deal of damage trying.


This Week Will Tell If The Bear is Really Coming Out of Hibernation

 
Last week’s selloff did less damage than it may have felt like. The drop stopped in the area of 3 crossing uptrend lines, ranging in length from short term to long term. Here’s what would tell us whether the uptrend is still in force, or signal that something evil this way comes. I have added 8 new stocks to the swing trade chart pick list, including 2 shorts.

SoberLook.com

Wall Street Examiner Disclosure: Lee Adler, The Wall Street Examiner reposts third party content with the permission of the publisher. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler, unless authored by me, under my byline. I curate posts here on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. Some of the content includes the original publisher's promotional messages. No endorsement of such content is either expressed or implied by posting the content. All items published here are matters of information and opinion, and are neither intended as, nor should you construe it as, individual investment advice. Do your own due diligence when considering the offerings of information providers, or considering any investment.

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