Below is the editorial in The New York Times of Friday, March 6, 2015 edited by the author to clarify matters of monetary policy.
The latest jobs report showed that unemployment fell to 5.5 percent in February and that 295,000 jobs were added to the economy. But the labor market is not as healthy as those figures might suggest.
For example, the latest report shows that unemployment is still elevated for African-Americans, at 10.4 percent, and for Hispanics, at 6.6 percent, compared with 4.7 percent for white workers. In a truly strong job market, those racial gaps would be narrower because the competition for workers would drive joblessness down for minorities, who are the hardest hit in hard times.
Another sign of weakness is stagnant wage growth. In a stronger job market, competition for labor would push up wages as it pulled down unemployment. But wages have barely budged throughout the nearly six-year-old recovery.
Ignoring these signs of weakness would be foolish, and yet the new report has stirred talk that the Federal Reserve will see the falling jobless rate as a sign of strength that justifies an imminent interest-rate increase. That would be a mistake, however, because raising rates in the near term would lock in high unemployment among minorities and wage stagnation.
The Fed should hold off until wages are growing and inflation forecast is 2.5 per cent year on year. In the meantime, it should use its regulatory tools to ensure that low-interest-rate credit is put to productive uses and not speculative bubbles.