Federal Reserve System Debriefed Slow Wage Increases

Federal Reserve System

Janet Yellen, Spokesperson and Chair of the Federal Reserve Board of Governors, debriefed the public Sept. 17, 2014 on Federal Open Market Committee (FOMC) projections during a scheduled press conference. Federal Reserve System debriefed slow wage increases and explained contributing factors of lagging unemployment rates. Yellen also outlined normalization efforts to return the economy back to pre-recessions conditions, by 2017.

According to the Committee, the economy has shown signs of growth over the last five years and economic conditions show signs of continuous improvement for the next five years. When questioned how the FOMC plans to continue stimulating the U.S. economy while maintaining job growth and inflation, Chairwoman Yellen diplomatically responded, “it’s necessary and appropriate to have a somewhat more accommodating policy.”

During the press conference, Chair Yellen confirmed that the economy showed sufficient signs of full recovery to pre-recession status, and that the country has come a long way. At the height of the economic crisis, over 10% of the workforce was without jobs. But with only moderate increases in jobs and wages, impacts to the Federal Reserve System caused by the 2008 recessions were deep and far-reaching.

As the Federal Reserve modifies interests and inflation rates, commonly referred to as monetary policy, the labor market is not seeing overall “significant” increases in wage. Changes in Federal Reserve System monetary policy can ignite a chain of events that affects prices of goods and services, long-term and short-term interests rates, foreign exchange rates, the availability of money, and issuance of money on credit, along with a host of other variables.

Federal Reserve SystemYellen explained that the labor market has not totally recovered. Although recent job growth is increasing, it has somewhat slowed compared to previous months, and outside of this optimism the Federal Reserve System debriefed slow wage increases. At a rate of 200,000 jobs per month, the Committee will maintain market gains and closely monitor the direction of unemployment to avoid unexpected changes.

The Committee  expects that unemployment should continue to improve, as will raising prices over the next few years. The FOMC seeks to meet its objective to stabilize the economy within this time span.

Currently, data from the Federal Reserve’s website shows inflation ranging between 1.5 and 1.7 percent. By late 2016 or early 2017, inflation is expected to eventually reach its normal target of 2 percent. Americans can expect to see a rise in consumer inflation with raising prices of goods and services.

As the FOMC tries to fully understand labor dynamics, the spokeswoman is certain that “There are still too many people who want jobs but cannot find them, too many who are working part-time but would prefer full-time work, and too many who are not searching for a job, but would be if the labor market were stronger.” As Yellen points out, the labor market continues to experience “significant underutilization of labor resources.”

Yellen explained that what the public is seeing in wages is essentially a reflection of the market conditions mentioned earlier. Committee statements imply that, since the workforce is not fully convinced that full-time work is available, many have stopped looking and many workers do not know where to find adequate work. As market conditions continue to improve the Committee is hopeful that more Americans will find full-time employment.  Before ending the press conference, Yellen stopped short of providing too much detail on contributing factors supporting why the Federal Reserve System debriefed slow wage increases. She stated that alternative indicators used to measure unemployment rates are being reviewed. Steps to correct slow wage increases among labor resources are pending better data and further discussions.

By Carolette Wright

Sources:

Federal Reserve

Bloomberg

CNN

Photo by NCinDC – Flickr

One Response to "Federal Reserve System Debriefed Slow Wage Increases"

  1. peterpalms   September 29, 2014 at 4:28 pm

    With gold as the monetary base, we would expect that improvements in manufacturing technology would gradually reduce the cost of production, causing, not stability, but a downward movement of all prices. That downward pressure, however, is partially offset by an increase in the cost of the more sophisticated tools that are required. Furthermore, similar technological efficiencies are being applied in the field of mining, so everything tends to balance out. History has shown that changes in this natural equilibrium are minimal and occur only gradually over a long
    1. See Galbraith, p. 250.

    period of time. For example, in 1913, the year the Federal Reserve was enacted into law, the average annual wage in America was $633. The exchange value of gold that year was $20.67. That means that the average worker earned the equivalent of 30.6 ounces of gold per year.
    In 1990, the average annual wage had risen to $20,468. That is a whopping increase of 3,233 per cent, an average rise of 42 per cent each year for 77 years. But the exchange value of gold in 1990 had also risen. It was at $386.90 per ounce. The average worker, therefore, was earning the equivalent of 52.9 ounces of gold per year. That is an increase of only 73 per cent, a rise of less than 1 per cent per year over that same period. It is obvious that the dramatic increase in the size of the paycheck was meaningless to the average American. The reality has been a small but steady increase in purchasing power (about 1 per cent per year) that has resulted from the gradual improvement in technology. This and only this has improved the standard of living and brought down real prices—as revealed by the relative value of gold.
    In areas where personal service is the primary factor and where technology is less important, the stability of gold as a measure of value is even more striking. At the Savoy Hotel in London, one gold sovereign will still buy dinner for three, exactly as it did in 1913. And, in ancient Rome, the cost of a finely made toga, belt, and pair of sandals was one ounce of gold. That is almost exactly the same cost today, two-thousand years later, for a hand-crafted suit, belt, and a pair of dress shoes. There are no central banks or other human institutions which could even come dose to providing that kind of price stability. And, yet, it is totally automatic under a gold standard.
    In any event, before leaving the subject of gold, we should acknowledge that there is nothing mystical about it. It is merely a commodity which, because it has intrinsic value and possesses certain qualities, has become accepted throughout history as a medium of exchange. Hitler waged a campaign against gold as a tool of the Jewish bankers. But the Nazis traded heavily in gold and largely financed their war machine with it. Lenin claimed that gold was used only to keep the workers in bondage and that, after the revolution, it would be used to cover the floors of public lavatories. The Soviet Union under Communism became one of the world’s biggest producers and users of gold. Economist John Maynard

    Keynes once dismissed gold as a “barbaric metal.” Many followers of Keynes today are heavily invested in gold. It is entirely possible, of course, that something other than gold would be better as the basis for money. It’s just that, in over two thousand years, no one has been able to find it.

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