Treasuries continue to trade in an extremely tight range; the 10 year sitting at 1.53%. Fed Chair Yellen’s speech, other Fed officials’ statements and last Friday’s employment report have led to the following general consensus: The Fed will raise rates one time this year in September (possibly) or December (most likely). Today’s Beige Book release and granular stats in recent employment reports focus on a key element in the Fed’s stated mission: wage growth. The Fed feels that their mandate is to “raise all boats”, ie create wage growth across all classes. It harkens back to the great post WW2 US economic expansion (generally thought of as 1946-1973), a period in which a majority of factory workers, blue and white collar employees enjoyed an ever-improving standard of living. That paradigm sputtered and flattened even during the 1990s and early 2000s expansions due to outsourcing, foreign competition, and other factors. Today’s Beige Book noted that wage increases are being reported among highly skilled workers, technology specialists, etc. In other words, the “holy grail” of widespread wage growth is still elusive. Is this part of the “new normal” and “secular stagnation”? This also highlights another issue: monetary policy vs. fiscal policy. Today’s world features extremely active (hyper active?) central banks and deadlocked legislative bodies (ie: US Congress, et al). Monetary policy can only do so much; many are looking to governments to do their part (job training, etc). Will this year’s election lead to a more cooperation and activity from the executive and legislative branches? Some real policy? Or is the Fed going to go it alone until it realizes that it has taken monetary policy to “the limit” and raises rates? Stay tuned.
