Labor Participation Is Up, so Fed Should Cool It, Economist Says

Natixis’ Joseph Lavorgna thinks better news on jobs means the Federal Reserve should end the rate hikes.

The June employment report showed a healthy increase of 213,000 jobs. But most heartening of all, the labor participation rate nudged up after a long down trend.

And that, said Joseph Lavorgna, chief economist for the Americas at investment bank Natixis, means that “the Fed will have even less reason to raise rates.” Lavorgna has said that the central bank should keep the benchmark federal funds rate at 2%, which is close to its current level.

The participation rate has tumbled from 66.2% of the working age population (16-64) in 2008, at the start of the Great Recession to just below 63%, according to the US Bureau of Labor Statistics. In June, it inched up to 62.9% from 62.7% in May. June’s reading marks the eighth time the rate has hit 62.9% over the past two years, and it reached 63.0% three times. This suggests that so-called discouraged workers are being attracted back to the jobs market.

More important, as Lavorgna pointed out in a research note, an upward trend is building for the “prime age” working population (25 to 54).

The Fed, which has raised rates twice this year and is expected to post two more increases in 2018, is keeping an eye on the ever-tighter labor market to see if it threatens to boost inflation to an unacceptable level. Private-sector wage growth over the past 12 months rose to 2.7% in June, which is better than the showing in recent years, but hardly overheated.

Inflation has been tame of late, hitting 2.0%, excluding volatile food and energy.

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