Low FF rate and down shift of Labor Particpation

Maybe they are beginning to confirm my ‘suspicion’ the mainstream has the rate thing backwards? Not that I agree with all their reasons, of course!

Subject: For The Economist in Us – Low FF rate and down shift of Labor Particpation

A short and interesting piece can be found on the St Louis Fed web site (and attached). Good chart on the second page showing the Federal Funds Rate and the Employment-to-Population Ratio. Towards the end of the report there is an interesting point about the current near zero rate and how it lifted, it could have have people re-enter the work force because it would increase the return to saving(s). I guess the labor force drop-outs view they’re not “leaving much on the table” . -Peter
It is titled “Low Interest Rates Have Yet to Spur Job Growth”.

The study says that “low interest rates , of late, do not seem to be having much of the intended effect either on spending or on job growth.”

A serious concern in labor market has been the down shift of the labor participation rate which may be hiding the true level of unemployment as people drop out of the labor force.

The paper states “”Interest rates represent the return we get for waiting to consume. Low interest rates encourage more spending today, which the Fed intends, and more leisure today, which the Fed does not intend. Labor participation rates decline for many reasons, but low interest rates work in the direction of discouraging labor market participation.”

Apparently, the Fed has been chasing its own tail and the more it has lowered rates in order to produce higher demand for labor, it has generated lower participation rates.

The paper concludes, with great understatement, “After four years of low interest rates and stagnating growth around the world, a better understanding of low interest rate policies is needed.”

Maybe Chair Bernanke agrees and this explains his announced absence from Jackson Hole.