MONEY Economy

Why This Fed Meeting Could Be a Game Changer

dollar sitting on fan of Euros
Dado Ruvic—Reuters

On Wednesday, the Fed may hint at raising interest rates for the first time in almost a decade. These three major issues will affect their decision.

Employment is up and economic growth is stronger, but that hasn’t made Janet Yellen’s job any easier. The Federal Reserve chair now has to decide how she’ll shift monetary policy out of crisis mode—the Fed has kept short-term interest rates near zero since 2008—and into something more like normal. All without breaking anything in the process.

That problem is the backdrop to the Federal Reserve’s Open Market Committee meeting on Tuesday and Wednesday. If early predictions are correct, the big news from the meeting may be that Yellen removes her pledge to be “patient” about possible interest rate hikes. If so, based on what Yellen has said about how she’ll signal a coming policy shift, the Fed could start raising its benchmark interest rate as early as June. That would ripple through the economy as lenders raise their own interest rates on loans.

But even before the Fed actually raises rates, any hint that it could raise rates will itself have an effect on markets, as investors and businesses try to get ahead of the trend.

In making this decision, the Fed faces three tough questions:

  • We have stronger economy—but is it strong enough to withstand higher rates? By many measures, the U.S. economy is doing quite well. Job growth has topped 200,000 per month for 13 straight months, and the unemployment rate has now fallen to 5.5%—four and a half points lower than at the height of the financial crisis. Yellen has previously promised to keep interest rates low until unemployment improved. Will she finally decide her job is done?
  • Does the rallying dollar change the game?. While a strong economy might make Yellen more comfortable about raising rates, an increasingly valuable dollar might push her in the opposite direction. America’s (relative) prosperity combined with Europe’s stagnation—and now looser money from the European Central Bank—has caused the euro to crash in value against the greenback. The EU’s currency recently fell to a 12-year low versus the dollar, making U.S. exports more expensive and potentially hampering future growth. Will the Fed decide to keep interest rates low for longer in the hopes of keeping the dollar competitive with the euro, or will the desire to normalize monetary policy win out?
  • Where’s the inflation? The reason to raise rates is to prevent a hot economy from igniting higher inflation. It might seem silly to worry about inflation when the dollar is the strongest it’s been in years and wage growth is all but nonexistent. That’s what economists like Paul Krugman and Lawrence Summers are arguing. On the other hand, lower unemployment suggests wages could rise in the near future, eventually pushing up prices. Although there is very little inflation right now, so-called inflation “hawks,” including some Federal Reserve regional bank presidents and members of the Fed’s rate-setting committee, think the central bank should act early to nip it in the bud.

We’ll know more about how the Fed is answering these questions on Wednesday, when the Fed announces it rate decision. Until then, “patience.”

TIME Wisconsin

Wisconsin Assembly Sends Right-to-Work Bill to Scott Walker

Governor Scott Walker Speaks at CPAC
Ron Sachs—Corbis Wisconsin Governor Scott Walker speaks at the Conservative Political Action Conference (CPAC) in National Harbor, Md. on Feb. 26, 2015.

The Assembly passed the bill 62-35 after a marathon session that included about 20 hours of debate

(MADISON, Wis) — Wisconsin lawmakers voted Friday to make their state the 25th to enact right-to-work legislation, pushing a fast-tracked bill through the Assembly after an overnight debate and sending it on to Gov. Scott Walker for his promised signature.

The Republican governor, a likely 2016 presidential candidate who rose to national prominence by taking on public-sector unions four years ago, plans to sign it Monday. Walker planned to be in Iowa for an agriculture summit on Saturday that’s attracting other likely Republican presidential candidates.

The Assembly passed the bill 62-35 after a marathon session that included about 20 hours of debate. It was a straight party-line vote, with no Democrats backing the measure.

“Today is the day we have solidified the regressive era in Wisconsin,” Democratic Rep. Terese Berceau, of Madison, said minutes before the vote.

The vote came after Walker said in September, during his re-election campaign, that right-to-work was not a priority and wouldn’t come up this session. Walker called it a distraction and feared that protests would grow as large as those in 2011 when he effectively ended collective bargaining for most public workers. Legislative leaders, including Republican Assembly Speaker Robin Vos, also said right-to-work would not be debated.

But two weeks ago, when Senate Republicans said they were going forward with it, Walker said he would sign it and the Assembly fell in line.

The protests were not nearly as large as four years ago, growing only as large as about 3,000 people compared with 100,000 in 2011.

Democrats accused Republicans of pressing the issue to help Walker’s likely presidential campaign.

“It’s the workers in this state that are suffering through the politics of our governor’s ambitions,” said Democratic Rep. Cory Mason, of Racine.

Vos accused Democrats of having “Walker derangement syndrome,” and said the bill was about giving workers the freedom to choose whether to pay union dues.

“I’m not going to apologize about using the word freedom,” said Republican Rep. Jeremy Thiesfeldt, of Fond du Lac. “I’m going to use it over and over again because that’s what this is about.”

Rep. LaTonya Johnson, D-Milwaukee, and a member of AFSCME, said she cares about people more than freedom.

“It just angers me to know that we come here and we pass bills that affect people’s everyday lives and we don’t have a clue as to how those everyday people live or how they survive,” Johnson said. “This bill is a bunch of crap.”

The proposal would make it a crime punishable by up to nine months in jail to require private-sector workers who aren’t in a union to pay dues.

Supporters argued it would make Wisconsin more attractive to businesses looking to move in or expand. But opponents said the goal is to destroy unions, which tend to vote Democrat, and a right-to-work law would depress wage and create more dangerous workplaces, in turn hurting the economy.

Twenty-four other states have right-to-work laws. Michigan and Indiana were the two most recent states to enact it, both in 2012.

Minutes after debate began in the Wisconsin Assembly on Thursday, protesters in the chamber’s gallery interrupted Vos, shouting “Right-to-work is wrong for Wisconsin!” Vos ordered the galleries cleared, leading to lawmakers debating in a chamber with no spectators.

MONEY Employment

Why It’s Time to Start Looking for Another Job

3 major economic indicators show why this might be the best time in a long time to start searching for other work.

Economists are pretty good at accounting for the unemployed and underemployed, but there’s one group that’s gone largely ignored during the economic recovery: people who have a job they don’t like, but are afraid to quit.

That’s probably because having a bad job was, at least until recently, seen as a pretty lucky problem to have. When times are tough and employment is scarce, any work is good work. But now the economy has sufficiently improved to the point where employees should stop feeling trapped in their current position and seriously consider making the change they’ve been longing for. Here’s why:

Hiring is way, way, up

Friday’s jobs report showed 295,000 jobs were filled in the month of February. That’s the 13th month in a row with more than 200,000 hirings, and the economy has added nearly 11.5 million jobs in the past five years.

Screen Shot 2015-03-06 at 9.22.13 AM

That’s a lot of jobs you could have instead of the one you’re stuck in.

Open positions are way up as well

Not only has hiring increased, but the number of positions has surged to a 14-year high. There were 5 million job openings at the end of last year, the most since 2001, and the ratio of unemployed job seekers to openings was 1.7, the lowest number since 2007.

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Employees are feeling more confident about quitting

A lot of smart people, including Federal Reserve Chair Janet Yellen, think one of the best indicators of economic progress is whether people have enough faith in the labor market to quit their current jobs. That statistic, known as the quit rate, has been rising and is now closing in on pre-recession levels.

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If you’re feeling like it’s time to leave for greener pastures, you’ll have a growing amount of company.

Read next:

How to Catch the Eye of a Recruiter in Just 7 Minutes

500,000 Walmart Workers Are Getting a Raise. Here’s How You Can Get One, Too

MONEY Jobs

Employers Add 295,000 Jobs as Economy Keeps Rolling

Amid signs of turmoil overseas, the U.S. economy keeps chugging along.

The U.S. economy gained 295,000 jobs in February, the 12th consecutive month employers added more than 200,000 to their payrolls. Meanwhile the unemployment rate dropped to 5.5%.

This is yet another sign of an improving — or what economists would call a “tightening” — labor market.

The rate at which workers are quitting their jobs has risen near levels not seen since before the 2007-2009 recession, implying that workers are feeling more secure that better opportunities lie ahead.

The number of unemployed workers who’ve been out of work 27 weeks or longer, while still high, is 31.1%, compared with 36.8% a year ago. Average hourly earnings grew by 0.1% last month, after rising 0.5% in January. Wages are up 2% over this time 12 months ago. That’s being be read by many analysts as a relatively sluggish number.

That last bit is important. While the labor market has been improving for more than a year, wage growth has disappointed. That in turn has kept a lid on inflation, which is one of the main reasons why interest rates have been next to nothing since the Great Recession and why the Fed, even now, will be “patient” in raising the cost of borrowing.

Even so “labor tightness is showing up in several high-profile labor disputes,” notes BMO chief investment officer Jack Ablin.

Recent anecdotal evidence points to workers having more power in their dealings with management — take striking port and refinery workers and pay raises for Wal-Mart and TJ Maxx employees. And the economy is still plugging along: an index that gauges non-manufacturing business rose a bit last month despite the headwinds from West Coast port strikes. “It was a miracle that the ISM non-manufacturing index managed to tick up for the second month in a row,” says Gluskin Sheff chief economist David Rosenberg.

Americans are feeling more confident about their finances, too. In the first three months of this year, the Wells Fargo/ Gallup Investor and Retirement Optimism Index jumped to its highest level since 2007. (Thank cheap gas prices.)

Wells Fargo Securities senior economist Sam Bullard believes the economy will continue to add workers this year at a clip of 224,000 per month.

“If realized, this strength in hiring would be enough to continue to pressure the unemployment rate lower and should result in a higher pace of wage growth–all supportive to a Fed tightening move in the coming months,” Bullard says.

TIME Business

These Are the 25 Best Places to Be an Intern in 2015

Based on an analysis by job review site Glassdoor

Glassdoor, a website that allows employees to post anonymous office reviews, has released its 2015 list of the best places to intern in the U.S. Facebook leads the ranking, which is based on the highest-rated reviews of each company. Tech dominates the list more than any other sector, with 12 companies represented.

The round-up is a promotion for the site’s new Glassdoor Students, a job search resource specifically tailored to college students.

GD-Highest-Rated-Companies-for-Internships-2015

 

LIST: 5 of the Best Companies for Working Moms

LIST: Best Places to Live 2014

Read next: The 25 Absolute Best Workplaces in the World

MONEY Baby Boomers

How to Work Less—Without Giving Up Your Career

Briefcase with fishing lures
Zachary Zavislak

It's called "phased retirement," and it's catching on.

The youngest baby boomers have just turned 50, bringing retirement within sight for the entire generation. But many boomers don’t expect to work at full throttle until the last day at the office. More than 40% want to shift gradually from full- to part-time work or take on less stressful jobs before retiring, a recent survey by Transamerica Center for Retirement Studies found.

It’s a concept called phased retirement, and it’s catching on. Last November the federal government okayed a plan to let certain long-tenured workers 55 and up stay on half-time while getting half their pension and full health benefits. Says Sara Rix, an adviser at AARP Public Policy Institute: “The federal government’s program may influence private companies to follow their lead.”

Formal phased-retirement plans remain rare; only 18% of companies offer the option to most or all workers. Informal programs are easier to find—roughly half of employers say they allow older workers to dial back to part-time, Transamerica found. But only 21% of employees agree that those practices are in place. “There’s a big disconnect between what employers believe they are doing and what workers perceive their employers to be doing,” says Transamerica Center president Catherine Collinson.

So you may have to forge your own path if you want to downshift in your career. Here’s how:

Resist Raiding Your Savings

Before you do anything, figure out what scaling back will mean for your eventual full retirement. As a part-timer, your income will drop. Ideally you should avoid dipping into your savings or claiming Social Security early, since both will cut your income later. If you’re eligible for a pension, the formula will heavily weight your final years of pay. So a lower salary may make phased retirement too costly.

Cutting back your retirement saving, though, may hurt less than you think. Say you were earning $100,000 and split that in half from 62 to 66. If you had saved $500,000 by 60, and you delay tapping that stash or claiming Social Security, your total income would be $66,700 a year in retirement, according to T. Rowe Price. That’s only slightly less than the $69,500 you would have had if you kept working full-time and saving the max until 66.

Start at the Office

If your employer has an official phased-retirement program, your job is easier. Assuming you’re eligible, you might be able to work half-time for half your pay and still keep your health insurance.

Then ask colleagues who have made that move what has worked for them and what pitfalls to avoid. Devise a plan with your boss, focusing on how you can solve problems, not create new ones with your absence. Perhaps you can mentor younger workers or share client leads. “Don’t expect to arrange this in one conversation—it will be a negotiation,” says Dallas financial planner Richard Jackson.

Without a formal program, you’ll have to have a conversation about part-time or consulting work. To make your case, spell out how you can offer value at a lower cost than a full-time employee, says Phil Dyer, a financial planner in Towson, Md.

Giving up group health insurance will be less of a financial blow if you are 65 and eligible for Medicare, or have coverage through your spouse. If not, you can shop for a policy on your state’s insurance exchange. “Even if you have to pay health care premiums for a couple of years, you may find it worthwhile to reduce the stress of working full-time,” says Dyer.

Do an Encore Elsewhere

This wind-down could also be a chance to do something completely different. Take advantage of online resources for older job seekers, including Encore.org, RetiredBrains.com, and Retirement-Jobs.com. You can find low-cost training at community colleges, which may offer programs specifically to fill jobs for local employers. Or, if you want nonprofit work, volunteer first. Says Chris Farrell, author of Unretirement, a new book about boomers working in retirement: “It’s a great way to discover what the organization really needs and how your skills might fit in.”

Sign up for a weekly email roundup of top retirement news, insights, and advice from editor-at-large Penelope Wang: money.com/retirewithmoney.

MONEY Social Security

Why a Better Job Market Can Mean a Social Security Bonus

Getting back to work for even a few years before you retire can make a big difference to your income.

More Americans over 55 are finally getting back to work after the long recession. The strong national employment report for January released last week confirmed that. The unemployment rate for those over 55 was just 4.1% in January, down from 4.5% a year ago and well below the national jobless rate. The 55-plus labor force participation rate inched up to 40% from 39.9%.

That is good news for patching up household balance sheets damaged by years of lost employment and savings, and also for boosting future Social Security benefits.

Social Security is a benefit you earn through work and payroll tax contributions. One widely known way to boost your monthly benefit amount is to work longer and delay your claiming date. But simply getting back into the job market can help.

Your Social Security benefit is calculated using a little-understood formula called the primary insurance amount (PIA). The PIA is determined by averaging together the 35 highest-earning years of your career. Those lifetime earnings are then wage-indexed to make them comparable with what workers are earning in the year you turn 60, using a formula called average indexed monthly earnings (AIME); finally, a progressivity formula is applied that returns greater amounts to lower-income workers (called “bend points”).

But what if you are getting close to retirement age and have less than 35 years of earnings due to joblessness during the recession?

The Social Security Administration still calculates your best 35 years. It just means that five of those years will be zeros, reducing the average wage used to calculate your PIA.

By going back to work in any capacity, you start to replace those zeros with years of earnings. That helps bring your average wage figure up a bit, even if you are earning less than in your last job, or working part time.

“Any earnings you have in a given year have the opportunity to go into your high 35,” notes Stephen C. Goss, Social Security’s chief actuary.

I ran the numbers for a an average worker (2014 income: $49,000) born in 1953, comparing PIA levels following 40 years of full employment with the benefit level assuming a layoff in 2009. The fully employed worker enters retirement at age 66 (the full retirement age) with an annual PIA of $20,148; the laid-off worker’s PIA is reduced by $924 (4.6%). Getting back into the labor force in 2014, and working through 2015, would restore $720 of that loss.

That might not sound like much, but it would total nearly $25,000 in lifetime Social Security benefits for a female worker who lives to age 88, assuming a 3% annual rate of inflation. And for higher income workers, the differences would be greater.

You also can continue “backfilling” your earnings if you work past 60, Goss notes. “You get credit all the way along the way. If you happen to work up to age 70 or even beyond, we recalculate your benefit if you have had more earnings.”

The timing of your filing also is critical. You’re eligible to file for a retirement benefit as early as age 62, but that would reduce your PIA 25 percent, a cut that would persist for the rest of your life. Waiting until after full retirement age allows you to earn delayed filing credits, which works out to 8% for each 12-month period you delay. Waiting one extra year beyond normal retirement age would get you 108% of your PIA; delaying a second year would get you 116%, and so on. You can earn those credits up until the year when you turn 70, and you also will receive any cost-of-living adjustment awarded during the intervening years when you finally file.

Getting back to work will be a tonic for many older Americans, but what they might not realize is that it is also a great path to filling their retirement gap with more robust Social Security checks.

TIME Careers & Workplace

Why Tesla Can’t Keep Its Hands Off Apple Employees

Tesla boasts that it has more than 150 former Apple employees and counting

Tesla revealed on Friday that it has poached more than 150 employees from Apple, siphoning more talent from the tech giant than any other company out there — auto makers included.

Elon Musk revealed the talent grab to Bloomberg News, arguing that Tesla shared a “design philosophy” with Apple that made the company’s Cupertino campus uniquely fertile grounds for headhunting.

The talent grab also hints at the increasingly critical role software will play in the future of the auto industry, from engine controls to touch screens to the Shangri-La of self-driving cars. Tesla’s Model S sedan, for instance, includes an “Autopilot Mode” that can scan the driver’s garage and automatically cruise the vehicle up the driveway and pull it into place.

[Bloomberg]

MONEY Jobs

Employers Hired 257,000 Workers in January

150206_INV_Wage_1
Datacraft Co Ltd/Getty Images

The economic picture continues to mend, but workers still looking for better wages.

The U.S. economy added 257,000 jobs in January, the 12th consecutive month employers hired more than 200,000 workers. Meanwhile, the unemployment rate rose slightly to 5.7%.

Employers also added more employees in the end of 2014 than originally thought. The Labor Department revised November’s employment change to 423,000, compared to 353,000, and December’s to 329,000, from 252,000.

The positive monthly employment report is another sign of a building economic recovery. The four-week moving average initial jobless claims recently fell by 6,500 to 292,750 The employment cost index, which measures salary and benefits, increased by 2.3% in the last three months of 2014. And the gross domestic product grew by 2.6% in the last quarter of 2014 after climbing by 5%. This good news, along with cheap energy prices, has also pushed up economic confidence.

The economy still is not back to a pre-2008 definition of normal, however. The headline unemployment rate measures only people who are looking for work. Since the post-crisis recession, however, many people dropped out of the work force, and they have been slow to come back in. Today’s report shows the labor-force participation rate at 62.9%, a marginal increase from a month ago, but still in line with a long-term decline. The rate is five points lower than it was at the turn of the century.

Another sign that the job market recovery remains soft: Average hourly wages in January were only up 2.2% compared to a year earlier. (While that’s an improvement over last month, wages grew around 4% per year prior to the Great Recession.) Long-term unemployment is also still at elevated levels.

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Modest wage growth helps to explain why inflation has remained low, even after stripping out the effect of falling prices at the gas pump. Core inflation, which strips away volatile energy and food prices, was up 1.6% year-over-year in December. That’s well below the 2% the Federal Reserve says it is targeting in deciding whether or not to raise key interest rates.

The Fed has been holding short-term rates near zero since the crisis, and is widely expected to begin raising rates this year as the economy improves. But they’ll have to weigh the encouraging signs from the new unemployment numbers against continued low inflation and wage growth, as well as the mounting economic troubles in Europe.

Sam Bullard, a senior economist at Wells Fargo Securities, shares the Fed’s belief that the labor market and economy are repairing, and thinks more hiring will push down the unemployment rate in the months to come, which will result in more money in worker’s paychecks. Eventually.

“Overall, we’re looking at an economy that’s improving,” says Bullard. “The one missing piece is a pickup in wage growth.”

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