The answer to the question of which indicator — unemployment or inflation — is correct about the health of the labor market is key to unlocking the Federal Reserve's next big monetary policy shift, and the mixed signals they are sending at the moment have sparked a heated debate.Business Insider — Clusterstock
Goldman Sachs economists Sven Jari Stehn and Jan Hatzius propose a simpler approach: the Fed should focus on wage growth as a primary input into the "reaction function" that dictates its response to changing economic conditions.
Why focus more on wage growth instead of inflation, or even the unemployment rate itself?
Ultimately, wages will respond to tightening labor market conditions, whereas consumer price inflation may not.
Goldman Sachs Chief Economist Proposes A Simple Fix To The Fed's Biggest Problem
Matthew Boesle
3 comments:
But they are already at zero and have been for like 5 years....
????
What are they going to do?
I think he is talking about the trigger to raise rates should be determined by wage inflation not commodity and asset price inflation. It is a decent discussion to have. Arguably, the commodity inflation we saw in the 2000s, masked the wage deflation problem. The wage deflation problem was the straw that broke the housing bubble and stymied all the financial models that assumed wage rigidity, stickiness, inflation would always and forever cause house prices to rise. I realize it is out of paradigm for a developed economy where there are more financial assets in the private sector than debt. But having meaningful targets is the first step in managing the economy. Once they realize rates don't do much anymore, they will start to help congress out of their muddled thinking and deficit addled leadership.
"Once they realize rates don't do much anymore, they will start to help congress out of their muddled thinking and deficit addled leadership."
Noble thought, Ryan. You wish.
I wouldn't bet anything of value on that premise.
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