Exiting QE Under False Pretenses

As the exceptionally well-informed readers of this little blog know, the Fed has signaled that once the unemployment rate reaches 6.5% it will declare “Mission Accomplished” and begin to unwind it’s various monetary stimulus programs. As this little snippet from the WSJ blog points out, getting to that magic number doesn’t necessarily mean that everything is hunky-dory.

Using average monthly growth of 208,000, the Atlanta Fed says at the current participation rate of 63.3% — last seen in 1979 — unemployment would drop to 6.5% from the current 7.5% in June 2014.

Reaching that unemployment is key as it’s a benchmark the FOMC has said is liable to warrant some ending of QE. If participation ticks up to 63.6%, that would mean 7% unemployment, and it would remain at 7.5% if the participation rate rebounded to 64%, a level last seen in December 2011.

So, there’s a chance that we will either have or not have the beginning of the end of QE depending upon how many people say they are or are not in the workforce. All of this, of course, derived from a statistical number that most economists consider highly speculative when viewed in isolation. I suspect, or perhaps hope is the better word, that the Fed has more sophisticated metrics than the unemployment rate they’ll use to get out. Then again declaring victory and bugging out is not a strategy unfamiliar to our government.

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