Tag: Inflation

Must-read: Jeffrey Sparshott: “Where the Jobless Rate Is 2.3%, Here’s What Happened to Wages”

Posted on by Brad DeLong

Must-Read: Jeffrey Sparshott: Where the Jobless Rate Is 2.3%, Here’s What Happened to Wages: “In Lincoln, Neb., average hourly earnings were stagnant until the unemployment rate crossed below 2.5% in the fall of 2014…

…Then, wages took off. Since last October, they gained as much as 10.9% from a  year earlier. The jobless rate in October: 2.3%…. ‘I continue to judge that there remains slack in the economy, margins of slack that are not reflected in the standard unemployment rate, and in particular I’ve pointed to the depressed level of labor-force participation, and also the somewhat abnormally high level of part-time employment,’ Federal Reserve Chairwoman Janet Yellen said this week…

Fed officials’ median projection for the normal long-run unemployment rate was 4.9% as of December. But economists don’t agree on a specific number, or even whether the economy has already reached full employment. In October and November, the unemployment rate was 5% and wages showed signs of firming…. ‘While most indicators have been trending in the right direction, nominal wage growth and the prime-age employment-to-population ratio remain far outside of target ranges, and provide ample evidence that the economy has a way to go before reaching full employment,’ said Elise Gould, an economist at the left-leaning Economic Policy Institute….

Private-sector wages across Nebraska have been growing faster than the national average. The state bumped its minimum wage to $8 an hour from $7.25 at the start of 2015 and will raise it to $9 at the start of 2016, but many firms are moving beyond that. One of the state’s biggest private employers, Bryan Health, in November moved its starting minimum wage to $11 an hour from $8.45….

But to highlight the fine line between apparent full employment and signs of slack, one only need look as far as Omaha. The larger city is only about an hour away from Lincoln and, with the unemployment rate at 2.9%, many companies there also worry about finding enough workers. But wages haven’t taken off. Indeed, for the first time on record, average hourly earnings in the Lincoln metro area surpassed those of Omaha earlier this year.

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Must-Read: Menzie Chinn: “Inflation Expectations Can Change Quickly…”

Posted on by Brad DeLong

Must-Read: It is not clear to me that inflation expectations would undergo a “rapid and dramatic shift” even if we had a “drastic regime change”. Or rather, as Stan Fischer told me when we were discussing Tom Sargent’s “Stopping Moderate Inflation” and “End of Four Big Inflations” papers, we say after the fact that we had a drastic regime change if and only if inflation expectations underwent a rapid and dramatic shift. It’s not something that one can do–especially living, as we do, not in Plato’s Republic but in Romulus’s Sewer…

Menzie Chinn: “Inflation Expectations Can Change Quickly…”: “One of the arguments for acting sooner rather than later on monetary policy…

…is that if the slack disappears, inflationary expectations will surge… [aA] in this quote from reader Peak Trader’s comment…. I am sure if there is a drastic regime change, one could see a rapid and dramatic shift in measured expectations; the question is whether that scenario is relevant and/or plausible…. I will let readers decide whether expectations turned on a dime. They seem pretty adaptive to me.

Inflation expectations can change quickly Econbrowser

Must-Read: Ken Rogoff: The Fed’s Communication Breakdown

Posted on by Brad DeLong

Must-Read: I guess I must be a foaming polemicist then :-)…

Ken Rogoff: The Fed’s Communication Breakdown: “Personally, I would probably err on the side of waiting longer…

…and accept the very high risk that, when inflation does rise, it will do so briskly, requiring a steeper path of interest-rate hikes later. But if the Fed goes that route, it needs to say clearly that it is deliberately risking an inflation overshoot. The case for waiting is that we really have no idea of what the equilibrium real (inflation-adjusted) policy interest rate is right now, and as such, need a clear signal on price growth before moving.

But only a foaming polemicist would deny that there is also a case for hiking rates sooner, as long as the Fed doesn’t throw random noise into the market by continuing to send spectacularly mixed signals about its beliefs and objectives. After all, the US economy is at or near full employment, and domestic demand is growing solidly…

I look at this graph:

A kink in the Phillips curve Equitable Growth

And I think: One always disagrees with the very sharp Ken Rogoff at one’s grave analytical peril…

But: Inflation expectations anchored at 2%/year, wage growth at 0%/year real, the prime-age employment-population ratio far below historical norms–that does not smell like an economy “at or near full employment” to me. And so I cannot see a “very high risk that, when inflation does rise, it will do so briskly”, or agree that “only a foaming polemicist would deny that there is also a case for hiking rates” not “sooner” but “right now”…

Must-Read: Macro Advisors: GDP Tracking

Posted on by Brad DeLong

Must-Read: Macro Advisors is currently at a 2.5%/year real GDP growth rate forecast for the fourth quarter of 2015, a 1.5%/year tracking estimate for the third quarter of 2015, 3.9% for the second quarter, and 0.6% for the first quarter. That’s 2.1% for the year–that’s not an economic growth rate that would make anyone think that inflationary pressures are building in the mantle underneath even though they are not visible anywhere in the crust:

Macro Advisors: GDP Tracking:

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