Labor Slack Shows Stocks Rely on the 'Yellen Put'

Optimists about the U.S. labor market have maintained that a healthy creation of jobs on a monthly basis and a falling unemployment rate pointed to approaching full employment. The expectation was for wages to accelerate, put upward pressure on inflation, and force the Federal Reserve to hike interest rates aggressively. In turn, that could precipitate a recession, ending the long-running rally in U.S. equities.

I have long held the opposite position -- that the labor market still has a lot of slack despite almost eight years of economic recovery from the recession. And inflation is not likely to accelerate any time soon. The jobless data for May, released June 2, provides ammunition to the position that the Fed and several Fed watchers have been wrong in adopting a hawkish stance.