Labor market conditions still driving Fed bus

Push this expectations of any Fed action further into the future. The Fed's labor market conditions index is showing negative numbers that would cause any investor to pause before arguing for a Fed rate rise. Remember that with the dual Fed mandate there are only two things that you have to worry about, full employment as measured by the labor market, and inflation. The labor market was looking robust so the focus was on the low inflation rate earlier this year, but now the focus will be back on labor. The LMCI showed a slight negative reading last month but with revisions to last month and the new number, the index has moved decidedly into negative territory. This is the first time since June 2012 and only the second time since the Great Recession. 

This number is important if we look at what the Fed did in the middle of 2012. In June 2012, the Fed extended Operation Twist and in September there was the announcement of QE3. If the labor market looks as bad as mid-2012 there is little likelihood there will be a change Fed policy. The Fed will stay the course with no action. A lot can happen between now and September but we will have to have higher inflation and a much improved labor market before the data dependent Fed will act.