President Obama Increases Wages, Overtime Pay, Fed Indicates Rate Hike Possible In Near Future

Policy Watch

• President Obama unveiled details on Tuesday that will increase by more than four million the number of workers who qualify for overtime pay whenever they work for more than 40 hours in any given week, thus allowing for effective wages to be increased without official raising the federal minimum. Meanwhile, 29 states and the District of Columbia have set their hourly wage minimum above the federal $7.25—the labor price floor that has been in place since 2007 when President George W. Bush signed it into law. Specifically, the new rules increase the salary threshold for which workers qualify for overtime from $23,660 per year to an annual $47,476, which is below the Labor Department’s proposed threshold of $50,440. The measures will also tie the salary threshold automatically to inflation to allow for perpetual increases in accordance with the time value of money, something that has never before been a part of wage regulation. The salary threshold will be upwardly revised every three years to match the 40th wage percentile of full-time salaried workers. Currently, fewer than 10% of salaried workers receive overtime pay. The change in rules will take effect immediately and are opposed by Republicans in Congress calling them destructive to business.[Politico]

Economic Indicators & News

• In minutes released from its April meeting, the Federal Reserve Open Markets Committee (FOMC) indicated that a June rate hike was possible if incoming macroeconomic data from the first half of 2016 would have been more positive. Indeed, participants noted strong employment and inflation moving toward the Fed’s 2% target, though they hesitated in raising rates due to the stagnant worldwide output growth that occurred during the period. Fed officials were less concerned about the risks posed by foreign markets, as emerging economies—notably China—stabilized from their volatile start to the year. Exposure risk to foreign markets was a leading reason why the Fed deviated from its course of six planned rate hikes during the year. The minutes were not void of bearish sentiment, however, as the committee cited the impending referendum in the United Kingdom to leave the European Union as reason for continuing a cautious future outlook. There are many bright areas of the U.S. domestic economy, notably industrial production, retail sales, and housing. FOMC officials called for another rate increase in the not-too-distant future. The market expects a rate hike in July and August with 38% and 57% probability, respectively.[Federal Reserve]
• Deflation returned to the Eurozone as prices in the monetary union were down 0.2% on the year ending during April in a second month of annual declines. Increasing energy prices were unable to compensate for worryingly negative inflation in service sector prices, for which the rate of increase dropped 0.5% to 0.9%. The core rate of inflation excluding food and energy fell to 0.7% from 1.0% in March despite quantitative easing efforts by the European Central Bank. An explanation for the annual decline, however, could be the timing of Easter, which was included in April 2015 data but not that from this year. With energy finally beginning to increase once again, calls have been made for the ECB to bolster easing efforts, which currently stand at $91 billion in open market bond purchases.[WSJ]