Federal Reserve and Monetary Policy: Time will Tell

The Employment Situation Report looks good on the surface, however, I find a few items disturbing. Making the assumption that the household data is, marginal, then I can not find anything really wrong. The unemployment rate held steady at 5.2%. The marginal attached labor force, see tables A-12, subsection U-5 went from 6.4% to 5.9% (not seasonly adjusted), 6.2% to 6.1% (SA). This is a good indication that at least for some people, they find that the job creation has picked up. This number is good news if it holds. It is bad news for long term inflation and inflationary expectations because the labor force buffer is apparently shrinking.

The established survey data is worrisome. BLS reports that payrolls grew by 274, 000, but the net birth/death model contributed 257, 000. Secondary evidence such as the duration of the unemployed, table A-9, indicated that with the exception of less than 5 weeks, all of the other time duration has gone down. GDP will indicate whether the 257, 000 is a mathematical artifact. (See "Federal Reserve and Monetary Policy: Greenspan's testimony on Captial Hill was as I feared" for my objections to the birth/death model)

The above analysis assumes that the large influx of illegal aliens has not corrupted the population samples. (see previous post)

At this current time, I will say that the Federal Reserve will raise short term interest rates by 25% at the next FOMC meeting. I will also say that the bond market is still correct in their collective thinking that the long term inflation risk is low.