Fed's Fever To Raise Rates Ignored Tumbling Labor Index

Last Friday’s abysmal jobs report has apparently put the Federal Reserve’s plan for a rate hike in June on hold, probably at least until September. But what’s especially puzzling about the push for the rate increase is that the Fed had a pretty good idea that a jobs slowdown was coming. Justin Fox over at Bloomberg points out that there is a measure put out by the Bureau of Labor Statistics (BLS) called the Labor Market Conditions Index (LMCI), a composite of 19 different indicators, and, apparently, this measure is a also favorite of Fed chair Janet Yellen. After peaking in late last year, the index has now shown a decline in each of the last five months and has been increasingly in negative territory in each of the last four, the worst sequence since the recession since 2008. So May’s awful jobs numbers probably did not come as quite the shock to the Fed as it did to the rest of us.  Which brings us back to the question of why the Fed seems so insistent on raising rates in the current environment. Inflation is still under the Fed target of 2%, hourly wages may be rising but hardly at a runaway pace, there looks to be substantial global headwinds to runaway economic growth, and the current recovery has been relatively long by historic standards although, admittedly, it had a huge hole to recover from. If anything, the risks are still clearly to the downside. So, again, why is the Fed in such a fever to raise rates?