Labor market and Brexit are wavering Fed’s decision

The June meeting of FOMC will announce the final decision. But economic indicators interpreted by Janet Yellen should be more important. The claim of risk from Brexit last time force the Fed hold the interest rate and now the leave trend just got more support. Wednesday’s speech which interprets the economy data to the market will be very important that market needs to get a much clearer picture of the US economy and find out the risks.

In a 2014 speech, Federal Reserve Chair Janet Yellen drew attention to one comprehensive metric that would serve as a better pulse on the state of the jobs market than the unemployment rate alone: the 19-part labor market conditions index, or LMCI.

This composite barometer draws on a host of data, including employment, underemployment, workers’ wages and average workweek length, job openings, as well as hirings and firings, to produce a summary statistic showing if conditions in the labor market improved from one month to the next.

And what it’s showing looks to be cause for concern: The LMCI has declined for five consecutive months, falling to its lowest level since the aftermath of the financial crisis in May.

Strong labor data is not an excuse for Fed anymore to claim the US economy is strong enough to ease the panic. Unemployment rate and hours earning both rise according to the labor report which is then regarded as companies are seeking more talent workers and cut the no necessary positions.

The median U.S. worker enjoyed a pay increase of 3.5 percent year-over-year as of May, according to the Federal Reserve Bank of Atlanta’s wage growth tracker.

Wage growth has been accelerating since October, quickening to a pace not seen since January 2009:

 

Meanwhile, the NFIB Small Business Optimism report for May, released on Tuesday morning, indicated that finding quality labor remains one of employers’ most vexing problems. The “failure rate” rose over the course of the month, they said, citing anecdotal evidence, as the share of owners who said they couldn’t fill a job opening lingered at historically high levels. 

“The sure sign of a tight labor market is one where employers are willing to bid up wages to attract talent. The NFIB has signaled this for a while now,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research. “The recent break out in the Atlanta Fed Wage Tracker adds to a growing body of evidence.”

Moreover, the possibility of UK’s decision to leave EU or not now significant changes according to the pool estimation. The online survey of 2,497 adults carried out by TNS June 7-13 found 47 percent backing “Leave” and 40 percent for “Remain.” It comes after four phone and online surveys released Monday by ICM, YouGov Plc and ORB showed leads of between 1 point and 7 points.

Due to the concern of Brexit, UVXY which is an ETF that tracks the double volatility of the market went up almost 50% from last Friday to this Monday. Investors’ opinion and fear are swallowing all the strong economic data from inventory and consumption.

Fed’s speech this Wednesday should both states the decision on the rate hike and the risks in the financial system. This election year is so confusing where investors see the collapse of oil and witness how fed convince the market the future of US will be fine. Now again, the UK and labor market post the question there. The speech will be crucial tomorrow especially it needs to state the risks comprehensively.

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