Chief economist update: Fed funds at five point O

The absence of fresh threat tweets from the US president has allowed me to take a fresh look at the US non-farm payrolls report released over the weekend.

It was good. Nah, it was excellent, the stuff of every central bank's dream. US non-farm payrolls increased by a significantly more than expected 213,000 in June after growing by 244,000 in the previous month. The unemployment rate did tick up to 4% from the 18-year low of 3.8% in May but this was due to the increase in the participation rate to 62.9% from 62.7% - indicating that even more workers are re-joining the labour force optimistic that they'll land one.

But don't take my word for it. Behind the already excellent non-farm payrolls report are more positive underpinnings.

Below is the job expectations survey from the most recent US consumer confidence report. Consumers see jobs more plentiful and easier to get these days than in the last boom years before the global financial crisis.

... and recall ex-Fed Chair Yellen's focus on the labour market under-utilisation in years gone by, the U-6 unemployment rate - which the Bureau of Labor Statistics (BLS) define as: "Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force" - has also dropped below pre-GFC boom levels.

The Fed funds rate was around 5%-5.25% the last time the US labour market was this good.

The difference in the current cycle is that wages growth is nearly half they were pre-GFC.

The strong wages growth at the time (and accompanying rise in inflation) prompted a series of rate hikes from the Fed so much so that the fed funds rate was higher than the yield on 10-year US Treasuries (yield curve inversion) that was later on followed by the Great Recession.

This is one of the reasons why Atlanta Fed president Raphael Bostic and some of his colleagues are advising the Fed to "slow the pace of interest rate hikes".

Read more: Below10-year US TreasuriesAtlanta FedBureau of Labor StatisticsChair YellenRaphael Bostic
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