Home Markets Opinion | The stock market liked the Fed’s plan to raise interest...

Opinion | The stock market liked the Fed’s plan to raise interest rates. It’s wrong.

2

Start with the labor market. It is now tighter than at any point in history: The vacancy-to-unemployment ratio is in unprecedented territory, quits are at near-record levels and wage growth is still rising at 6 percent, having accelerated rapidly in the past few months. The FOMC expects further tightening, to a 3.5 percent unemployment rate, which it expects will be maintained through 2024.

Three years at 3.5 percent unemployment, something the country has not seen in about 60 years, is highly implausible. Indeed, the historical experience is that when unemployment is below 4 percent, there is a 70 percent chance of joblessness rising rapidly in the next two years as the economy goes into recession.

But that is not the central absurdity in the Fed forecast. The chief problem is the idea that a super-tight labor market will somehow coincide with rapidly slowing inflation. Even on the Fed’s optimistic accounting, a…

Click here for full article…www.washingtonpost.com