114 THE BiG DROP
will, in fact, raise rates. My view that they won’t is based on
what I expect the data to show. I don’t have a crystal ball and
I’m not sitting inside the Fed boardroom overhearing the chit-
chat. I’m basing this on what the Fed itself says.
They say that the decision is data-dependent. If you look at
the data, it’s coming in weak. I know we had this gangbuster
third-quarter 2014 GDP, but there’s a lot of noise around that
and it doesn’t appear to be sustained. The fourth quarter came
in a lot weaker yesterday and the first quarter 2015 may be
weaker yet. We’re still not seeing any pulse in the thing that
Janet Yellen pays so much attention to, which is real wages.
Real wages are stagnant.
Remember that the Fed has a dual mandate that consists
of trying to reduce unemployment (or create employment,
depending on how you want to put it) and price stability.
Sometimes those things are in conflict and they have to roll the
dice on inflation a little bit in order to create jobs or other times
they have to stifle job growth in order to damp down inflation.
You can’t always do both of them at once, but sometimes
you can. What’s the one piece of data where both parts of the
dual mandate come together? One thing you can look at that
tells you something about both is real wages. If real wages are
going up, that’s a leading indicator of inflation, but it also tells
you that the labor market’s pretty healthy because employees
cannot get a raise or demand a raise from their bosses or their
companies unless the labor market’s tight.
Real wages is the number one thing Janet Yellen is look-
ing at. Guess what? They went down; they’re still going down.
There doesn’t seem to be anything indicating, at least as far as
the data is concerned, that they should raise rates. I think this is
just the result of bad forecasting. They always forecast stronger
growth than we actually get, and by the time they catch up to
the reality of their forecast, they find out that we’re nowhere
near what they expected.