Officially, unemployment in the U.S. was at about 7.7% in November*. That’s high, but it’s been dropping steadily over the past year, and in Virginia, our rate is about two percent lower.
The latest report from ADP found good news: “U.S. private-sector employers added 215,000 jobs last month, well above economists’ expectations.”
Great. So more Americans are going back to work. What’s not to like (especially because 39,000 of those new workers were in the construction industry)?
For the long term, it’s all good of course. Healthy, happy, employed people make the economy grow, pay taxes, and — hopefully — buy homes, too. But here’s a nugget: The Federal Reserve has said it won’t raise interest rates until unemployment hits 6.5%.
At that point — or if inflation gets above 2.5% — the federal discount rate (which is what banks pay to borrow from the government) might well go up, taking, obviously, other interest rates with it.
In other words, when unemployment gets low enough, mortgage rates are probably going to start going up. Probably being the operative word here, because when it comes to monetary policy I’m not willing to place any bets.
The Fed had originally said it would hold rates steady until at least 2015, but then changed that to the clearer target of the unemployment rate. Which means — depending on which
oracle economist you consult, could be
According to calculations by the Brookings Institution’s Hamilton Project, at the current pace of job growth […] we won’t see 6.5 percent unemployment until 2018.
The average prediction of 75 economists surveyed by Bloomberg is that unemployment will be down to 7.3 percent by the second quarter of 2014.
So it could be next year, it could be 2018, or it could be somewhere in the middle. Or later. Or sooner.
Regardless, when you hear the monthly unemployment report, keep that 6.5% in mind. Because that’s going to bring some big changes.
Click here to read more from Businessweek.
* In reality it’s just over 12%. The 7.7% figure, for reasons I’ve never been able to fathom, only includes people receiving unemployment benefits. It does not include “Persons [sic] who currently want a job” but no longer receive benefits.
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