Tim Duy's Fed Watch

On The Road Again

I am leaving tomorrow on a road trip to a wedding in Gunnison, Colorado.  I anticipate light, if any, blogging for around ten days.  

Hilsenstory

Jon Hilsenrath analyzes the week's events and concludes:

The markets might be misreading the Federal Reserve’s messages.

Specifically:

“The FOMC was more hawkish than we had expected,” economists at Goldman Sachs concluded after the Wednesday Fed policy meeting, a view widely held on Wall Street trading floors.

However, a close look at Mr. Bernanke’s press conference comments and Fed official’s interest-rate projections released after the meeting show the Fed took several steps aimed at sending the opposite signal.

I am going to add two points.  First is that while great pains were taken to lock up expectations of the path of short-run interest rates, the Fed may be underestimating the importance of the flow of asset purchases.  Federal Reserve Chairman Ben Bernanke reiterated the Fed's belief that the stock of asset held is the key variable.  Felix Salmon, however, has the oppostie view:

At his press conference yesterday, Ben Bernanke reiterated his view that the way QE works is through simple supply and demand: since the Fed is buying up fixed-income assets, that means fewer such assets to go round for everybody else, and therefore higher prices on those assets and lower yields generally. In reality, however, the flow always mattered more than the stock: when the Fed is in the market every day, buying up assets, that supports prices more than the fact that they’re sitting on a large balance sheet. And even more important is the bigger message sent by those purchases: that we’re in a world of highly heterodox monetary policy, where the world’s central banks can help send asset prices, especially in the fixed-income world, to levels they would never be able to reach unaided.

I tend to think that market participants generally favor this view.  And why shouldn't they?  The pace of the flow says something about the expected future stock of the assets.  One way to interpret this week's events is that market participants now see that the stock of assets held by the Fed is reaching its peak, and while the Fed may not sell those assets, they will let them mature off the balance sheet.  

The second point, which I don't think should be under-emphasized, is that only one person who was in the room Tuesday and Wednesday has spoken about the meeting - St. Louis Federal Reserve President James Bullard.  And I think he gave a pretty clear message:

Policy actions should be undertaken to meet policy objectives, not calendar objectives.

The Fed shifted toward calendar objectives this week.  It is the only way to reconcile Bernanke's plan for ending QE with the data flow.  

More directly to the point, however, is Bullard's response in this interview with Neil Irwin and Ylan Mui:

N.I.: Is that correct? Is this a more hawkish Fed today than it was a week ago or a month ago?

J.B.: Based on Wednesday’s action, I would say it is.

Bullard was in the room and concluded the same thing markets concluded:  The Fed shifted in a hawkish direction this week.  Bernanke might have tried to cushion the blow, but you can't avoid the reality that he he laid out a plan to end QE - and that plan involves a shift toward a calendar component.    

 

It's About The Calendar

St. Louis Federal Reserve President James Bullard explained his FOMC dissent in a press release this morning, and it was an eye-opener.  I don't see how you can read Bullard's statement and not conclude that the primary consideration for scaling back asset purchases is the calendar.  I think that the date, not the data, is more important than Fed officials like to claim. 

 Bullard first attacks the Fed's decision in light of falling inflation:

Federal Reserve Bank of St. Louis President James Bullard dissented with the Federal Open Market Committee decision announced on June 19, 2013.  In his view, the Committee should have more strongly signaled its willingness to defend its inflation target of 2 percent in light of recent low inflation readings.  Inflation in the U.S. has surprised on the downside during 2013.  Measured as the percent change from one year earlier, the personal consumption expenditures (PCE) headline inflation rate is running below 1 percent, and the PCE core inflation rate is close to 1 percent.  President Bullard believes that to maintain credibility, the Committee must defend its inflation target when inflation is below target as well as when it is above target.

No surprise here; Bullard frequently voices concerns about the path of inflation and inflation expectations on both sides of the target.  The real action begins with the next sentence:

President Bullard also felt that the Committee’s decision to authorize the Chairman to lay out a more elaborate plan for reducing the pace of asset purchases was inappropriately timed.  The Committee was, through the Summary of Economic Projections process, marking down its assessment of both real GDP growth and inflation for 2013, and yet simultaneously announcing that less accommodative policy may be in store.  President Bullard felt that a more prudent approach would be to wait for more tangible signs that the economy was strengthening and that inflation was on a path to return toward target before making such an announcement.

Bullard's point is a good one.  Why would the Fed lay out a plan to withdraw accommodation - which in and of itself is a withdrawal of accommodation - at a meeting when forecasts were downgraded?  Because, as a group, policymakers are no longer comfortable with asset purchases and want to draw the program to a close as soon as possible.  And that means downplaying soft data and hanging policy on whatever good data comes in the door.  In this case, that means the improvement in the unemployment rate forecast.  Just for good measure, let's add on a new policy trigger, a 7% unemployment rate.  In my opinion, it is not a coincidence that they picked a trigger variable where their forecasts have been most accurate or even too pessimistic.  They loaded the dice in their favor.

Bullard then goes one step further:

In addition, President Bullard felt that the Committee’s decision to authorize the Chairman to make an announcement of an approximate timeline for reducing the pace of asset purchases to zero was a step away from state-contingent monetary policy.  President Bullard feels strongly that state-contingent monetary policy is best central bank practice, with clear support both from academic theory and from central bank experience over the last several decades.  Policy actions should be undertaken to meet policy objectives, not calendar objectives.

Key words: "calendar objectives."  Bullard clearly felt the mood in the room was something to the effect of "We know the data is soft, but we want out of this program by the middle of next year, so we are going to lay out a program to do just that."  

In light of Bullard's dissent, the market's reaction should be perfectly clear.  I have seen some twitter chatter to the effect of market participants didn't understand what Federal Reserve Chairman Ben Bernanke was saying, that his message was really dovish, that interest rates would be nailed to the zero bound in 2015, that the policy was data dependent, etc.  Market participants obviously didn't have that interpretation.  

Indeed, I think market participants clearly heard Bernanke.  After weeks of being soothed by analysts saying that the data was key, that low inflation would stay the Fed's hand, Bernanke laid out clear as day a plan for ending quantitative easing by the middle of next year.  Market participants then concluded exactly what Bullard concluded:  It's the date, not the data. 

With that information in hand, market participants did exactly what should have been expected.  I think Felix Salmon has it right:

What we really saw today was not a move out of stocks, or bonds, or gold, but rather a repricing within each asset class.

The Fed changed the game this week.  Bernanke made clear the Fed wants out of quantitative easing.  While everything is data dependent, the weight has shifted.  The objective of ending quantitative now carries as much if not more weight than the data.  Market participants need to adjust the prices of risk assets accordingly.

Bottom Line:  I think the question is not how good the data needs to be to convince the Fed to taper.  The question is how bad it needs to be to convince them not to taper.  And I think it needs to be pretty bad.

The Chart to Watch?

Dylan Matthews at Wonkblog has a common chart illustrating the Fed's recent forecast errors:

The story is that the Fed has tended to overestimate the strength of the economy, and has consequently had to maintain easy policy longer than policymakers had anticipated.  Assuming the Fed continues this pattern of errors, they may delay the now-anticipated exit from asset purchases.  As monetary policymakers continue to emphasize, policy is data dependent.

But while the growth forecasts have tended to be overly optimistic, the same is not true for the unemployment forecast.  Those forecasts have tended to move downward over time:

I am sure this difference has not been lost on the Fed, especially if they have a Phillips Curve view of inflation.  I suspect that as unemployment creeps lower, they will downplay low growth in favor of emphasizing the importance of low unemployment.  This is especially true now that Bernanke has defined a 7% trigger for ending asset purchases.  In short, don't assume that a failure to meet the growth forecast will hold the Fed's hand.  Watch the unemployment forecast; it may be more important at this point in the policy cycle. 

FOMC Statement: Second Reaction

We now have Federal Reserve Chairman Ben Bernanke's press conference behind us, and we will be pulling it apart for nuances and insights for days.  What I expected going into this presser was this:

Bernanke will attempt to detail how exactly the data flow is supportive of scaling back asset purchases in the next few months (I believe the Fed prefers September) while at the same time disassociating asset purchases from interest rate policy.

Of course, Bernanke did not say September.  But I think he made clear that assuming the Fed's forecasts hold, they see that asset purchases will be gradually reduced beginning later this year with the expectation that the Fed will QE draw to a close by the middle of next year.  He confirmed my suspicion that although the Fed sees the fiscal sector as a drag on overall growth, they do not believe it has harmed the underlying momentum of the economy.  I would even say that he sounded relatively optimistic. Thus, downside risks have diminished and it is appropriate to begin reducing accommodation.

Interesting, he seemed to set a trigger, not a threshold, for ending QE - the program should be concluded when unemployment hits 7%.  I am surprised that he set a number, although it is consistent with the idea that the Fed wants to end QE well ahead of the 6.5% threshold for unemployment.  Watching the unemployment rate just became even more important, as a faster than expected move to 7% will be associated with a faster end to QE.

Bernanke took pains to separate the winding down of asset purchases, which the Fed believes is a reduction of accommodation, and the decision to tighten by raising interest rates.  He made clear that 6.5% was NOT a trigger for higher rates, and implied that rates would stay near zero well past the 6.5% threshold, especially if inflation remains low.  I believe he was trying to anchor rates in the face of the announced (yes, data dependent) time line for ending QE.  If he was, it didn't work - 10-year yields rose sharply today.

Bernanke continued to deflect attention from the low inflation numbers, describing them as largely transitory, identifying the impact of the sequester on medical payments as a factor.  Here is what I think is going on:  Overall, the Fed has basically a Phillips Curve view of inflation.  Low inflation now is attributable to high unemployment.  Given that unemployment is forecast to fall, and the forecasts are improving such that it is falling faster than anticipated, they anticipate that disinflation will soon be halted.  In other words, right now policy is being driven by the unemployment rate.  The more quickly unemployment is moving to the Fed's long run target, the more they will reduce accommodation despite low inflation.  At least, that is what it appears.

 Bottom Line:  Yes, as always, everything is data dependent.  But the Fed believes the current path of data is sufficient to justify scaling back and ending the asset purchases program.  Tightening policy via rate hikes, however, is still far in the future.

 

FOMC Statement: First Reaction

The June FOMC statement was released minutes ago, and it sent a clear signal that the door to scaling back asset purchases was now wide open.  Of course, we still await the press conference, where Federal Reserve Chairman Ben Bernanke can place his own spin on the statement, but I suspect we will see him take the opportunity to set the stage for a policy change as early as September.  

Two key sentences stand out.  First, on inflation:

Partly reflecting transitory influences, inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable.

This sounds like the FOMC continues to downplay the recent slide in inflation and instead focus on the longer-term forecast and stable inflation expectations.  Thus, inflation is as of yet not an impediment to scaling back asset purchases.  Second, despite the weight of fiscal contraction:

The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall.

One justification for QE3 and the conversion of Operation Twist to an outright pruchase program was to protect against downside risks, primarily fiscal policy.  If those risks are diminishing, so too is the case for the current rate of asset purchases.

The decision was not unanimous.  Earlier this month I wrote:

Indeed, I suspect that at least one policymaker, current voting member St. Louis Federal Reserve President James Bullard, would push for expanding asset purchases given the inflation and inflation expectations data.  It would be interesting if he dissented a "hold steady" statement at the next meeting on that basis.

Bullard did indeed dissent, on the other side of Kansas City Federal Reserve President Esther George's dissent:

Voting against the action was James Bullard, who believed that the Committee should signal more strongly its willingness to defend its inflation goal in light of recent low inflation readings, and Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.

Interesting that only Bullard seems to be concerned about low inflation.  Others ignoring inflation because it is inconvenient in light of the hope to scale back asset purchases sooner than later?

On the forecasts, near-term growth forecasts edged down, while the downward-revised inflation forecast was a little more aggressive.  But the improvement in the unemployment forecast is most important assuming the Fed wants to end asset purchases prior to hitting the 6.5% threshold, now seen as early as the end of net year.

And now to the press conference so see weather whether Bernanke confirms or denies my first reactions!

FOMC Meeting Begins Tomorrow

This week's FOMC meeting is shaping up to be quite the event.  Not for the actually policy result itself, which is widely expected to be unchanged, but for the subsequent press conference with Federal Reserve Chairman Ben Bernanke.  The Fed's communication strategy has clearly unraveled in recent weeks, and Bernanke has an opportunity to regain control.  But will he be able to do so, or will he leave even more confusion in his wake?  

Start with the basics, the statement itself.  The Fed is not going to change the pace of asset purchases this week.  Recent Fedspeak has made clear that it remains too early to reduce monetary accommodation.  The statement will probably be relatively unchanged.  I anticipate that they take note of some moderately weaker data since the last FOMC meeting, as well as lower than anticipated inflation.  Neither, however, is sufficient to drive asset purchases higher.  It will be interesting to how much they emphasize the fiscal contraction.  If the statement shifts to the side of "fiscal contraction appears to be having little impact on private activity," the implication would be that they are looking through the fiscal drag on headline GDP numbers.  That obviously sets the stage for reducing asset purchases sooner than later.

Next come the closely watched forecasts.  Near-term forecasts for inflation and perhaps GDP growth may be softer, but also watch the longer-term forecasts and especially any change in the expected path of unemployment.  The latter, I think, is critical in setting an end to asset purchases - the Fed will want to be draw QE to a close prior to hitting the 6.5% threshold at which point they have said they will evaluate rate policy.

Finally comes the press conference.  Here is where the real action should take place.  Market participants have become increasingly concerned about ending asset purchases.  I believe that market participants are having trouble understanding the implications, or lack thereof, of altering the pace of quantitative easing on interest rate policy.  Bernanke will attempt to clear the way for ending quantitative easing while attempting to divorce that decision from any subsequent decision on rate hikes.  

This, of course, will be easier said than done.  I think a critical problem is that the Fed does not want to be pre-committed to some policy path, but at the same time does not want to surprise markets.  They want to avoid a repeat of 1994, with the sharp spike in yields viewed as a communications failure.  They believed they would resolve this divide by shifting the focus to the data.  They were wrong.

Ylan Mui at the Washington Post describes the nature of the problem:

Investors increasingly have focused on predicting the moment the Fed will start to pull back on its massive stimulus program...

...It’s the type of parlor game the Fed had hoped to avoid. Instead, it has tried to convince the markets that the date is less important than the data.

Fed officials deliberately chose not to attach a time frame to their easy-money policies when developing their forward guidance for the public last year.

Stop right here.  I think it is important to note that Fed policymakers are the ones who started the ball rolling on the importance of the date over the data.  Specifically, at the beginning of April San Franscisco Federal Reserve President John Williams defined a time line for ending QE given the current path of data. At that point the conversation shifted from data to date.  Other policymakers followed suit.

Does that mean that Williams made an error?  Not necessarily.  I think it is impossible to communicate the path of policy without making market participants aware of the associated timeline.  Once you describe your view of the data and your forecast, by default you will define the expected time for the policy change.  In effect, the Fed can't have it both ways.  They can't jointly pretend the date doesn't matter while at the same time clearly communicating the path of policy.  If they don't communicate the path/timing, then the eventual policy move will trigger an overreaction.  If they do communicate the path/timing, but don't explain how that path fits in the context of the data, then they also risk an overreaction.  

The latter is the position they now find themselves in.  Williams let the cat out of the bag, that the Fed had a time line in mind.  But it is challenging to see how the data fits into the time line.  Back to Mui:

The goal was to help investors come to better conclusions on their own by revealing the public data that Fed officials use as guideposts. In theory, that means interest rates would hew more closely to incoming data than to Fed pronouncements.

But, as it turns out, there are many ways to parse the numbers.

“They kind of threw out these conditions,” said Michael Feroli, chief U.S. economist at JPMorgan. “They’re telling us something but not telling us something.”

Honestly, it is difficult to make the case for ending asset purchases on the data alone.  It is neither clear that the labor market is stronger and sustainable nor that asset purchases should be cut in the face of falling inflation.  In fact, I think you can argue that the Fed is moving the goalposts to some less defined objective.  As noted above, I think the path of the unemployment rate plays a role.  But so too does financial stability concerns.  And also general discomfort on the part of policymakers about the size of the balance sheet.  Indeed, the December conversion from Operation Twist to asset purchases may have been simply insurance against a fiscal disaster that did not materialize.  Ultimately, the shift to tapering talk was too abrupt given the data, and that raises the possibility that some undisclosed factor is at work.

Now, if we don't understand what is driving the decision to scale back asset purchases, then it is likely we also don't understand how the data will impact subsequent interest rate decisions.  Again, back to Mui:

Part of the problem has been muddy economic data that do not provide a clear signal of where the recovery is headed. The Fed also has left itself plenty of wiggle room to interpret the data. It did not define what “substantial improvement” would be required to dial back its $85 billion-a-month in bond purchases, and it has suggested that it could leave interest rates untouched even after its unemployment or inflation thresholds are met.

If the Fed's plans for ending quantitative easing are opaque relative to the data, then what is are we to expect when the unemployment threshold approaches.  An equally opaque policy response?  Is the Fed going to change the goalposts again?  When does it shift from unemployment and inflation to concerns about  financial stability?  And how do they propose to pretend that you can commit to some data dependent path without implying a related time line?

Bottom Line:  This FOMC meeting is about the Fed regaining - or further losing - control over its communication strategy.  Bernanke will attempt to detail how exactly the data flow is supportive of scaling back asset purchases in the next few months (I believe the Fed prefers September) while at the same time disassociating asset purchases from interest rate policy.  I think it is important that market participants believe that the shift to tapering talk was entirely data dependent and not influenced by some other factors.  Otherwise, they will doubt the supposed data dependent thresholds for rate policy.  And the Fed is going to have to come to terms with the reality that the instant they start to anticipate a change in policy, they start a clock ticking.  Making the distinction between date and data is not as easy as it sounds.

 

Two For Tapering

Today's data was supportive of the Fed scaling back its asset purchase program sooner than later - although it is important to clarify that "sooner" does not mean next week, but September.  Later is December.  Data dependent, of course.  But the data is not yet taking the kind of downward turn needed to turn talk away from tapering.

Retail sales rose 0.6% in May, slightly ahead of expectations of a 0.5% gain.  Excluding autos and gas, the general upward trend of recent months is steady:

That said, the pace of growth isn't exactly something to get excited about:

At best, year-over-year growth is just pulling back into the range seen for most of 2012.  We are getting spending growth, just not as much as would normally be seen in an expansion.  That lack of growth, however, was evident before the tapering talk emerged, suggesting that the Fed does not see the current pace of activity as an impediment to tapering. Talk about diminished expectations....

Somewhat more optimistic was the drop in initial unemployment claims:

Volatile data, to be sure, but I still don't see reason to believe the downward trend is broken.  We are heading into a range generally consistent with solid job growth, a key focus of monetary policymakers as they assess the pace of quantitative easing.

 Separately, Zero Hedge is quoting economist David Rosenberg:

From what I hear, Ben Bernanke convinced the FOMC in December that in order to get ahead of a potential 'fiscal cliff' in December, it was a matter of having to 'shoot first and ask questions later'. In other words, take a pre-emptive strike in December against the prospect of falling off the proverbial cliff and into recession in the opening months of 2013. But what happened next was a fiscal deal that was reached in early January and the economy faced a hill, not a cliff. The economy still faces near-term sequestering hurdles, but the reality is that a bold policy move aimed at thwarting off recession is now being reconsidered. Bernanke apparently told the hawks on the FOMC that if the economy was not in contraction mode by now, the 'tapering off' talk would ensue — and that is exactly what has happened.

An interesting anecdote, and, if true, suggests that Federal Reserve Chairman Ben Bernanke is not quite the dove many believe him to be. Moreover, it would be consistent with my belief that Bernanke uses the next press conference to clear the way for tapering.  

Finally, Edward Harrison, in his review of global market volatility (behind paywall), worries that the worst is still ahead of us with regards to fiscal contraction:

In North America, the talk is of tapering and the markets are in a tissy. It shows you that QE is really about risk-on risk-off and the markets are moving to risk off because they don’t believe in the Bernanke put anymore. In the real economy, it’s stall speed and I expect it to stay that way until Q4, when the next year of fiscal cuts come. The Republicans are now ready to make serious cuts to defense. Someone I know who does budgeting at Defense told me no one made any real cuts this year because they had budget headroom. The real cuts are coming in FY 2014. I think FY 2014 is going to be ugly.

The Fed is thinking the impact of fiscal contraction will fade as 2013 progresses.  Harrison is suggesting this is wishful thinking.

Bottom Line:  Today's data appears consistent with Fed expectations that they can begin tapering asset purchases this year.  Still a horse race between September and December, although I think the Fed is aiming for the earlier date if data allows. 

 

Bullard Holds His Ground

St. Louis Federal Reserve President James Bullard reaffirmed his commitment to the current policy stance.  From his press release:

“Labor market conditions have improved since last summer, suggesting the Committee could slow the pace of purchases, but surprisingly low inflation readings may mean the Committee can maintain its aggressive program over a longer time frame,” Bullard concluded.

This is not surprising.  Bullard has long been more focused on the implications of inflation for policy, believing that employment is largely out of the Fed's hands at this point.  More from Reuters:

"What's not encouraging in this picture is that it's (inflation) just going down and so far it hasn't moved back at all. So I would have expected our very aggressive purchase program to turn that process, inflation expectations would go up and actual inflation would follow behind, which is what happened in the QE2 period," said St. Louis Fed President James Bullard.

I think that Bullard is something of an outlier at this point.  Ongoing declines in inflation would eventually cause his worries to spread further through the Fed, and could very well delay any effort to cut back on asset purchases.  That, however, is not the baseline case.  As a general rule, policymakers are more focused on the path of unemployment, which leads them to expect tapering to begin as early as in a few months. See Robin Harding here.

On the subject of tapering, Jon Hilsenrath had this to say over the weekend:

The hangup for Fed officials is the word “tapering” suggests a slow, steady and predictable reduction from the current level of $85 billion a month at a succession of Fed meetings, say to $65 billion per month, then to $45 billion and so on. And that’s not necessarily what Fed officials envision.

Because Fed officials are uncertain about the economic outlook and the pros and cons of their own program, they might reduce their bond purchases once and then do nothing for a while. Or they might cut their bond buying once and then later increase it if the economy falters. Or they might indeed reduce their purchases in a series of steps if warranted by economic developments — but they don’t want the markets to think that’s a set plan. It is, as Fed officials like to say, “data dependent.”

Which is interesting given that Bullard had this to say regarding inflation and policy:

"Maybe this is noise in the data, maybe this will turn around, but I'd like to see some reassurance that this is going to turn around before we start to taper our asset purchase program," he said. 

If the Fed wants us to stop using the word "taper," they will need to take the lead.  Or is Bullard just being honest - any reasonable forecast matched against their past behavior suggests the Fed tapers.  On financial stability, Bullard adds this:

He noted that the Fed remains vigilant about the potential for financial market excess in the U.S.  “An important concern for the FOMC is that low interest rates can be associated with excessive risk-taking in financial markets,” Bullard said.  “So far, it appears that this type of activity has been limited since the end of the recession in 2009.”  While the Dodd-Frank Act is meant to help contain some dimensions of this activity, “Still, this issue bears careful watching:  Both the 1990s and the 2000s were characterized by very large asset bubbles,” he added.

 The Fed is keeping an eye out for bubbles, but the bulk of policymakers aren't finding them.  Consequently, the issue of financial stability is not a primary driver of policy.  At best it is a distant third, far behind unemployment first and inflation second.

 Bottom Line:  Bullard remains focused on inflation.  If his colleagues were to join him, they would stop pointing us toward cutting asset purchases in the next few months.  As a general rule, however, for now low inflation is seen as an aberration, not the forecast.  

 

More of the Same

Unless you thought the job market tanked in May, the employment report contained little if any new information.  The labor market continues to grind upward at a pace that most of us consider subpar, but fast enough that monetary policymakers are willing to consider pulling back on asset purchases as early as September.  I don't see anything is this report that will alter the Fed's rhetoric on tapering one way or the other.  Expect policymakers to continue to say "Not now, maybe in a few months."

Nonfarm payrolls rose 175k in May, just above the consensus forecast of 167k.  March was revised up, April down, for a net loss of 12k compared to previous estimates.  The payroll gain was almost exactly the twelve-month average:

Taken in context of the Yellen indicators, tough to say that much has changed:

The unemployment rate did tick up as the labor force rose.  In theory, a rapid rise in labor force participation could dissuade the Fed from tapering as it would push back the expected date of hitting the 6.5% unemployment threshold.  But the little gain in this month's report would be considered just noise at this point.  

Other labor market indicators are generally holding their previous trends, for better or worse:

The lack of wages gains is a disappointment and a clear signal that plenty of slack remains in the labor market.  That slack is revealed in underemployment indicators, which remain elevated and making only gradual improvement:

A hint of good news in the decline of those not in the labor force, but available for work.  Perhaps an early sign of a more general acceleration in labor markets?  Too early to tell, but something to watch.

Bottom line:  An unexciting report.  Little to change the view that the economy continues to shuffle forward despite the numerous negative shocks since the recovery began.  At best, some hints of future strength in the labor force gains.  Overall, little reason to believe the employment report will alter thinking on Constitution Ave.