The contrast between the improving health of the US labor market and the weakness of other economic indicators poses a challenging quandary for the Federal Reserve.
Fed Chair Janet Yellen and other officials have said the Fed must raise its benchmark interest rate as job growth continues to prevent higher inflation down the road. The strength of the jobs report for last month — including faster wage growth — suggests the Fed’s policymaking committee still could raise rates as soon at its next meeting next month.
However, the Fed would be betting on a theory. Inflation remains low, growth has slowed and the impact of global economic problems and financial market volatility is unclear. If the Fed presses ahead, it could undermine the economy just as things are getting good for the vast majority of Americans.
“My message to the Fed regarding this recent, long-awaited acceleration in wages is ‘Love it and leave it alone,’” said Jared Bernstein, an economist at the Center on Budget and Policy Priorities who previously served as the chief economic adviser to US Vice President Joe Biden. “If we want working people to benefit from the expansion, the last thing you’d want to do is tap the brakes — especially given the absence of inflationary pressures.”
The Fed raised its benchmark rate in December last year for the first time since the financial crisis. It had held rates near zero for seven years to encourage borrowing and risk-taking. Yellen, speaking after the announcement, said the Fed planned to raise rates gradually, reducing those incentives because the economy no longer needed quite as much help.
She is to speak publicly for the first time since then on Wednesday when she testifies before the House Financial Services Committee. In the intervening two months, the economic outlook has deteriorated. Financial conditions have tightened and the US dollar has gained strength, weighing on US exporters and delaying any rebound in inflation.
The jobs report for last month, however, reflects considerable strength in other parts of the economy. Stronger wage growth is particularly likely to grab the Fed’s attention, suggesting that employers are finally being forced to compete for workers by raising pay. In addition, the Fed is less likely to worry about the slower pace of job creation last month, as officials have predicted that slower population growth would weigh on job creation. In keeping with those expectations, the unemployment rate still fell to 4.9 percent.
One wing of the Fed sees an undiminished case for raising rates.
Federal Reserve Bank of Kansas City President Esther George, one of the 10 Fed officials voting on the direction of policy this year, said last week that the Fed “should continue the gradual adjustment of moving rates higher to keep them aligned with economic activity and inflation.”
She also played down concerns about the economic impact of recent market volatility. “While taking a signal from such volatility is warranted,” she said, “monetary policy cannot respond to every blip in financial markets.”
Federal Reserve Bank of Cleveland President Loretta Mester, another voter, said on Thursday in New York that it was “premature” to change her economic outlook.
“At this point, solid labor market indicators, including strong payroll growth, and healthy growth in real disposable income, suggest that underlying US economic fundamentals remain sound,” Mester said. “Until we see further evidence to the contrary, my expectation is that the US economy will work through the latest episode of market turbulence and soft patch to regain its footing for moderate growth.”
Nvidia Corp earned its US$2.2 trillion market cap by producing artificial intelligence (AI) chips that have become the lifeblood powering the new era of generative AI developers from start-ups to Microsoft Corp, OpenAI and Google parent Alphabet Inc. Almost as important to its hardware is the company’s nearly 20 years’ worth of computer code, which helps make competition with the company nearly impossible. More than 4 million global developers rely on Nvidia’s CUDA software platform to build AI and other apps. Now a coalition of tech companies that includes Qualcomm Inc, Google and Intel Corp plans to loosen Nvidia’s chokehold by going
DECOUPLING? In a sign of deeper US-China technology decoupling, Apple has held initial talks about using Baidu’s generative AI technology in its iPhones, the Wall Street Journal said China has introduced guidelines to phase out US microprocessors from Intel Corp and Advanced Micro Devices Inc (AMD) from government PCs and servers, the Financial Times reported yesterday. The procurement guidance also seeks to sideline Microsoft Corp’s Windows operating system and foreign-made database software in favor of domestic options, the report said. Chinese officials have begun following the guidelines, which were unveiled in December last year, the report said. They order government agencies above the township level to include criteria requiring “safe and reliable” processors and operating systems when making purchases, the newspaper said. The US has been aiming to boost domestic semiconductor
ENERGY IMPACT: The electricity rate hike is expected to add about NT$4 billion to TSMC’s electricity bill a year and cut its annual earnings per share by about NT$0.154 Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has left its long-term gross margin target unchanged despite the government deciding on Friday to raise electricity rates. One of the heaviest power consuming manufacturers in Taiwan, TSMC said it always respects the government’s energy policy and would continue to operate its fabs by making efforts in energy conservation. The chipmaker said it has left a long-term goal of more than 53 percent in gross margin unchanged. The Ministry of Economic Affairs concluded a power rate evaluation meeting on Friday, announcing electricity tariffs would go up by 11 percent on average to about NT$3.4518 per kilowatt-hour (kWh)
OPENING ADDRESS: The CEO is to give a speech on the future of high-performance computing and artificial intelligence at the trade show’s opening on June 3, TAITRA said Advanced Micro Devices Inc (AMD) chairperson and chief executive officer Lisa Su (蘇姿丰) is to deliver the opening keynote speech at Computex Taipei this year, the event’s organizer said in a statement yesterday. Su is to give a speech on the future of high-performance computing (HPC) in the artificial intelligence (AI) era to open Computex, one of the world’s largest computer and technology trade events, at 9:30am on June 3, the Taiwan External Trade Development Council (TAITRA) said. Su is to explore how AMD and the company’s strategic technology partners are pushing the limits of AI and HPC, from data centers to