Fed caught between shock and hard place

WOW,

the Fed is really screwed! The central bank will have to decide in two weeks whether to raise interest rates for the first time in nearly a decade. But the decision is one of those brain twisters with no right answer: The Federal Reserve wants to raise rates, it must raise rates, but it is becoming increasingly impossible to raise them.

If Janet Yellen and her gang of quicktalking but dimwitted colleagues had been reading my columns, they would have known that the August employment report released Friday was going to be both disappointing and a problem for them.

The economy added 173,000 new jobs last month, compared with an upwardly revised 245,000 in July. Wall Street was expecting growth of 220,000 jobs in August.

The stock market didn’t take the news well.

I won’t get into the full explana tion here, but a slowdown in the economy (now growing at just a 1.5 percent annual rate in the third quarter, according to the Atlanta Fed) and some major statistical aberrations in summertime doomed the August report.

After Friday’s employment data came out, Wall Street was betting there was only a 34 percent chance that the Fed would hike interest rates at its Sept. 1617 meeting. I think there is zero chance — except there are some reasons the Fed might prove me wrong:

The Fed’s nearzero interest rates policy hasn’t helped the economy, probably because it’s taking interest income out of too many consumers’ pockets. So the Fed knows it needs to reverse course and raise rates.

If any of the Fed’s economists are doing their job, they also know that the economy is withering. If rates aren’t raised soon, the Fed may feel that it will again miss its opportunity to make a move.

The September employment report could be an outright disaster, mostly because of statistical quirks in the numbers. After that Oct. 2 release by the Labor Department, all possible excuses for a rate hike could be lost.

The Fed also needs to raise in terest rates because it may have to lower them in just a couple of months to boost the economy.

This may sound stupid, but even the Fed has recently been whispering to the Wall Street Journal what I’ve been saying all along: Our central bank is out of tools to remedy a declining economy. Raising rates so they can soon cut them will be more of a symbolic action, but it’s all the Fed has left.

The Chinese government has been selling a lot of its US Treasury bond holdings recently to boost the Shanghai stock market and help its own economy. This selling could cause interest rates to rise even if the Fed doesn’t approve — and Yellen may want to get out in front of this.

The unemployment rate, which fell to 5.1 percent in August from 5.3 percent, could give the Fed the excuse it needs for a rate increase. The jobless rate is a horribly misleading figure because it drops when discouraged people give up looking for work and leave the workforce.

That’s what happened in Friday’s figures. Some 41,000 families left the workforce, and that contributed to the jobless rate decline. The Labor Department, however, couldn’t say how much of a contribution those 40,000 discouraged households made. Still, because the Fed needs to raise rates, the drop in the unemployment rate could provide the flimsy excuse it needs to do so.

There’s one more interesting thing that will happen almost simultaneously with the Fed’s next rate meeting. At 10 a.m. on Sept. 17, the Labor Department will release benchmark revisions — corrections — for its 2015 Current Employment Survey. That’s the survey from which the monthly unemployment rate is derived.

The Department will correct job growth up to last March. So,o, as the Fed gavels the opening of its meeting, the Labor Department will be admitting to mistakes — both positive and negative.

You have to feel a little sorry for the Fed. It’s got to be pretty screwy trying to make policy when the statistics are twisting beneath your feet.

I’ve been dealing with a lot of very frustrated government whistleblowers over the past few years. These folks try to fix what they see is wrong in government and generally get abused for their efforts.

I’m bringing it up now because a guy named Kevin Downing, 68, recently killed a guard at the Federal Building at 201 Varick St. in downtown Manhattan.

He was a whistleblower who tried to fix a problem he saw while employed at the US Bureau of Labor Statistics. He blew the whistle more than 15 years ago — and got nothing but grief for his effort.

Downing killed himself after murdering a guard who was protecting that building.

I didn’t know Downing, and he never reached out to me. I wish he had.h Obviously, what he did was very wrong, misguided and a sin of the highest magnitude.

But we should learn something from this incident. If nothing else, it’s that if the government wants people to report wrongdoing — and I’m not sure it really does — then whistleblowers need to be protected.

The guard, 53yearold Idrissa Camara, might be alive today if Downing’s situation had been handled better by the government and the media to whom this whistleblower reached out.