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Will Fed Soon Join Suicidal Negative-Interest-Rate Parade?

June 8, 2016 (EIRNS)—In the wake of official reports of the large shrinkage of the American workforce this Spring, with 1.2 million eligible workers dropping out in three months, the Federal Reserve has given up the pretense of any more interest rates increases, except in the rhetorical distance.

On June 3, Fed Governing Board member Lael Brainard spoke at the Council on Foreign Relations in Washington, and said that the Fed has a Labor Market Conditions Index which has been negative for all of 2016 in addition the last two months of 2015, getting worse with each month. She noted a Harris poll in which 43% of unemployed respondents said they had given up looking for work—including 59% of those unemployed for two years or more. Brainard also reported that since the "end of the Great Recession" in July 2009, average annual productivity growth in the U.S. economy has been just 0.4%—the "productivity paradox," she called it — and average GDP growth only 1.25% annually.

Based on these and other factors, Brainard claimed that right now, what she called the "neutral interest rate"—neither stimulating nor constricting the economy—would be the current Fed discount rate of 0.25-0.50%. She explicitly opposed any rate increase, and her implication was that the Fed might have to go lower, perhaps even negative, to deal with this "productivity paradox."

The ZeroHedge website added some long-term figures on U.S. employment picture:

Since the start of 2009 (roughly the supposed "end of the Great Recession"), the workforce has grown by 21 million people, while the number of employed has grown by 5 million. The labor participation rates has plunged from 66.0% to 62.6%. The number of Americans who have left the work force is 16 million. Thus there has been a labor force 24% entry rate in Obama’s decade, even lower than the 30% in Bush’s decade; and the "normal" rate from the ’60s to the ’90s was 70% entry of new work-eligibles into the workforce.

This is not due to retirement of the large Boomer generation; a record percentage of Americans over the age of 65 are working.

Only 2 million full-time jobs, net, have been added since start of 2009.

Real median household income remains lower than in 2007.

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