Fed's Dudley stays
upbeat, says U.S. labor market improving
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[August 19, 2016]
By Jonathan Spicer and Stephanie Kelly
NEW YORK (Reuters) - Strong employment
and a long-awaited return of middle-wage jobs suggest the labor
market is tightening and the broader U.S. economy is on track, an
influential Federal Reserve policymaker said on Thursday, appearing
to reinforce his more confident message on a possible interest-rate
hike.
New York Fed President William Dudley, a permanent voter on U.S.
interest-rate policy and a close ally of Fed Chair Janet Yellen,
said the last two months of employment "helped allay concerns that
arose earlier this year that job growth was beginning to stall (and)
reinforced my view that labor market conditions continue to
improve."
While Dudley had some cautionary words on Puerto Rico's struggling
economy, he painted a relatively bright picture of the national
labor market that prompted investors to send Treasury yields
somewhat lower and, briefly, to boost the dollar.
The comments come as investors struggle to parse mixed messages on
whether a rate hike is imminent. Minutes from the Fed's July policy
meeting show Dudley's colleagues are torn between hiking soon based
on labor market strength, or waiting until inflation is more
evident.
Earlier this week, Dudley said rates could possibly rise as soon as
September, depending on the economic data and signs of inflation.
"The labor market continues to tighten," he said on Thursday, citing
evidence of wage gains in the employment cost index and in average
hourly earnings, two key pieces of data. The roughly 2.5 percent
growth in wages "suggests we are getting closer to full employment."
In another sign of labor resilience, data on Thursday showed the
number of Americans filing for unemployment benefits dropped more
than expected last week.
Meanwhile, the U.S. economy appears to be bouncing back from a weak
growth rate of about 1 percent in the first half of the year. That,
along with overseas risks and financial market volatility, caused
the Fed to stand pat on policy since hiking rates from near zero
back in December.
While Dudley said he expects growth to reach about 2.5 to 3 percent
in the second half of the year, he said the labor market would
factor more in his rate-hike decision in part because U.S.
productivity remains a wildcard. "At the end of the day, how the GDP
growth translates in terms of employment gains is probably the more
important element," he said.
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![](../images/081916PICS/busine21.jpg)
New York Fed President William Dudley takes part in a panel convened
to speak about the health of the U.S. economy in New York, U.S. on
November 18, 2015. REUTERS/Lucas Jackson/File Photo - RTX2L9HD
![](http://archives.lincolndailynews.com/2016/Aug/19/images/ads/current/st_claras_lda_082114.png)
Investors give about an 18 percent chance of a Fed rate hike next month, and
almost even odds of a move in December after the November U.S. presidential
election.
Citing fresh New York Fed research on the "hollowing out" of the labor market,
in which positions like teachers and mechanics have faded in the last few
decades and contributed to American wage inequality, Dudley said "the tide has
begun to turn."
"For the first time in quite a while, gains in middle-wage jobs actually
outnumber gains in higher- and lower-wage jobs nationwide," said Dudley.
And turning to Puerto Rico, which lies in the New York Fed's district, Dudley
said reforms, a debt-burden adjustment, and economic growth were all needed to
tackle its "unsustainable" public debt.
(Reporting by Jonathan Spicer and Stephanie Kelly; Editing by Chizu Nomiyama and
Alan Crosby)
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