Janet Yellen gave a speech today at the Jackson Hole conference. Here are 3 parts from her speech that are noteworthy and somewhat ominous… 1. “For example, as I discussed earlier, if downward nominal wage rigidities created a stock of pent-up wage deflation during the economic downturn, observed wage and price pressures associated with a […]
I have been writing about the Effective Demand rule for monetary policy lately. The version that I have been showing uses a labor share anchor, which is a projection of where labor share will be at the natural limit of the business cycle. Labor share has always tended toward its labor share anchor at the […]
What would the Fed funds rate be if we were in normal times? Basically, what would the Fed funds rate be if we used a rule instead of the discretionary policy being used by the Fed? I use my Effective Demand rule using the CPI (less food & energy) data released just this morning. My […]
We see more talk now about how the Fed may have to raise its base overnight rate (Fed funds rate) faster than planned. Data is coming out that points to a need to raise the Fed funds rate. Last week I posted this graph showing the Fed funds rate in comparison to the “Effective Demand” […]
Under normal economic conditions, the Fed funds rate would be higher. Yet, the Fed funds rate has been effectively at the zero lower bound for years. Why? Well, the answer is simple… The Fed has lost track of how to measure potential GDP and true slack. The problem is that the Fed has no awareness […]
Tim Duy wrote a post yesterday called, Heading into Jackson Hole. He gives a broad perspective of the economy relevant to monetary policy, which of course will be the major topic of discussion in Jackson Hole. He recognizes that wages need to rise even though firms complain of not being able to fill job openings. […]
Paul Krugman wrote a post today called, What’s the Matter with Europe? He cites that Industrial Production is stalling out there. Now this is a sign that Europe is against the effective demand limit. Something we already knew from productivity numbers. So there is no surprise. However, Mr. Krugman states that the US is not […]
From an article posted at ABC News, US Retail Sales Flat in July… “U.S. retail sales were essentially flat in July, providing evidence that consumers have yet to shed their doubts about the economy despite recent job gains. The Commerce Department said Wednesday that seasonally adjusted retail sales were unchanged in July compared with the […]
Labor share data going back many years was revised last week. According to these new revisions, the economy has been against the effective demand limit since the beginning of the year. With the stock markets retreating from their record highs, this should not be surprising. Keep in mind that the updated graphs below are based […]
There is a concern that many economists want the Federal Reserve to tighten monetary policy because the inflation monster is lurking out there. Maybe tighten is not the best word to use. “Normalize” monetary policy is a better term. Well anyway, the inflation monster is not lurking while labor share rises so slowly. Then, is […]