The Media Is Wrong About The Fed
Earlier this year, most of the financial stories were about how the Fed will start to raise interest rates in June. Much of this speculation was due to the lower unemployment rate, and the expectation that the U.S. economy would be in full recovery. This past Wednesday, the Fed decided not to raise interest rates, despite the fact that most media pundits were certain that it would finally have normalized its monetary policy by now.
Despite the recent inaction by the Fed, many still believe a rate hike will occur inSeptember. The problem with this assumption is that most media analysts are basing it on a headline number such as unemployment, and not the underlying details of the labor market.
Currently, the unemployment rate stands at 5.5%. Although this looks great on the surface, one of the reasons the unemployment rate is so low, is because only62% of the population is participating in the work force.
When looking at this chart, one can see a clear correlation between the decline in the unemployment rate, and the decline in the labor participation rate. The mainstream press attributes this to the retirement of baby boomers, but the statistics don’t support their thesis.
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This chart clearly shows that the declining labor participation rate has come from the age groups between 16-54 years old, people that are considered to be in their prime working years. The age group of 55-75, has actually increased its labor participation rate. This is the opposite of what normally would occur.
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