Job seekers’ rising hopes seen prolonging low Fed rates

Next Meeting

Bernanke and fellow policy makers on the Federal Open Market Committee hold their next meeting July 30-31.

The Standard & Poor’s 500 Index rose for four days in a row after Bernanke said July 17 that there is no fixed schedule for ending the Fed’s program of bond purchases known as quantitative easing. In today’s trading, the S&P 500 fell 0.2% after reaching an all-time high yesterday, trading at 1692.17 as of 10:40 a.m. in New York.

European stocks advanced as a measure of French business confidence rose to the highest in 15 months in July. Sentiment among industrial executives increased to 95 from 93 in June, national statistics office Insee in Paris said today.

In the U.S., nobody knows how many workers are staying out of the labor force until higher-wage jobs appear, or would accept work now at a wage lower than their last job.

So long as unemployment remains high, “it is hard to see any wage pressures for a time” with a large pool of available labor keeping compensation low, said Julia Coronado, chief economist for North America at BNP Paribas in New York and a former member of the Fed’s Division of Research and Statistics.

Inflation Threshold

That’s helping keep a lid on inflation, the other threshold the Fed is watching before it will consider raising the benchmark interest rate.

The FOMC said the benchmark rate will remain around zero at least as long as inflation is forecast to rise over one to two years no more than 2.5%.

The Fed’s preferred inflation gauge, the personal consumption expenditures price index, rose 1% for the 12 months ended in May, a point below the central bank’s 2% goal. Fed officials in June forecast that prices will rise 1.4% to 2% next year, according to their central tendency estimates.

BNP Paribas estimates the labor force participation rate will rise gradually to 63.7% at the end of 2014, keeping the unemployment rate at 6.8% in December.

“I do think there are a lot of young people or prime age people that will come back” into the labor force, Coronado said. “There are plenty of people who want or need to work, particularly if the labor market continues to improve and decent paying jobs become more readily available.”

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