Weak labor markets will remain a serious problem for quite some time. Numbers released last Friday show that America's actual unemployment rate is nearly double the headline rate of 7 percent. That is what you get when you include people working part-time (7.7 million) because they cannot find a full-time job, and people (2.1 million) who dropped out of the labor force because they were unable to find work.
With the headline unemployment number of 10.9 million, that puts the actual number of people out of work at a staggering 20.9 million, or 13.2 percent of the civilian labor force.
What's equally disheartening is that the number of people looking for a job for more than two years (the long-term unemployed) was unchanged at 4.1 million last month, meaning that nearly 40 percent of people officially recorded as unemployed were becoming virtually unemployable. They are now part of the structural features of the U.S. labor market, where the hard-core unemployment rate (i.e., the structural unemployment rate) is currently estimated at more than 6 percent.
In other words, it will be impossible to get the headline unemployment rate below 6 percent as long as the potential growth rate of the U.S. economy remains what it is now (around 2 percent). Clearly, it will take quite a while to change that.
(Read more: Yes, more jobs, but wage growth holds up recovery)
The Fed will be a fast friend for some time
This is what the Fed is struggling with. I understand that all these numbers and economic prose are much less engaging than the bubble talk, but these are the numbers and the kind of analysis driving the Fed's key policy decisions.
Indeed, with so much slack in the labor markets, investors should find it plausible that the Fed continues to maintain extraordinary amounts of liquidity in the economy.
It is also clear that, for the same reason, the Fed is not in a hurry to begin rolling back its monetary stimulus.
What does all this mean for investment strategy?
I maintain my long-held view that U.S. bond markets will continue to correct, despite occasional rallies as a result of lower-than-expected numbers on economic activity and/or the Fed's large market interventions.
(Read more: Jobs report and the taper)
U.S. equities will continue to benefit from exceptionally liquid markets. They will also be driven by strong earnings growth. After tax profits in the third quarter of this year were nearly 9 percent above their year-earlier levels. And during the first nine months of this year, net profits were a whopping 12.5 percent higher than the year before.
That shows that the Dow's 23 percent gain over the last 12 months had some strong real underpinnings.
The profit outlook remains good. I expect a recovery of productivity growth after a dismal third quarter performance. These efficiency gains and subdued wage costs should keep profit margins widening in a growing economy.
The key message is this: the Fed will maintain easy credit conditions until the economy stabilizes in a growth range of 2.0-2.5 percent. That is the pace of economic activity that will support improving employment conditions in the context of the medium-term inflation objective of around 2 percent.
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Michael Ivanovitch is president of MSI Global, a New York-based economic research company. He also served as a senior economist at the OECD in Paris, international economist at the Federal Reserve Bank of New York and taught economics at Columbia.