But central banks are beginning to raise interest rates anyway
.. Turkey, perhaps the only big economy that is obviously overheating, the central bank—which has been browbeaten by the president, Recep Tayyip Erdogan, who believes high interest rates cause inflation—opted on October 26th to keep interest rates on hold... three elements: the price of imports; the public’s expectations; and capacity pressures (or “slack”) in the domestic economy. Start with imported inflation, which is determined by the balance of supply and demand in globally traded goods, such as commodities, as well as shifts in exchange rates. Commodity prices have picked up smartly from their nadir in early 2016. The oil price, which fell below $30 a barrel then, has risen above $60... Leave aside the transient effects of import prices, and inflation becomes a tug-of-war between expectations and a third big influence, the amount of slack in the economy... As the economy approaches full employment, the scarcity of workers ought to put upward pressure on wages, which companies then pass on in higher prices. On some measures, Japan’s labour market is as tight as it has been since the 1970s. America’s jobless rate, at 4.2%, is the lowest for over 16 years. Inflation has nevertheless been surprisingly weak... the trade-off between unemployment and inflation, known as the Phillips curve, has become less steep... a drop in the unemployment rate in America has less than a third as much power to raise inflation as it did in the mid-1970s... the flatter Phillips curve suggests that the cost for central banks in higher inflation of delaying interest-rate rises is rather low.
Why Soaring Assets and Low Unemployment Mean It’s Time to Start Worrying
Today’s conditions expose vulnerabilities that make a recession or market meltdown more likely
If you drew up a list of preconditions for recession, it would include the following: a labor market at full strength, frothy asset prices, tightening central banks, and a pervasive sense of calm.In other words, it would look a lot like the present.
.. Companies meanwhile have responded to slow, stable growth and low rates by borrowing heavily, often to buy back stock or pay dividends. Corporate debt as a share of economic output is at levels last seen just before the past two recessions.
.. Last week Janet Yellen, the Fed chairwoman, said she thought there wouldn’t be another financial crisis “in our lifetimes.” Fair enough: crises as catastrophic as the last happen twice a century. But small crises are inevitable as risk migrates to financial players who haven’t drawn the attention of regulators.
.. in a world with permanently lower inflation and growth, businesses will struggle to earn their way out of debt
An Econ Mystery: Why Did Wages Flatline?
The latest jobs report shows full employment but it hasn’t brought workers higher pay.
Over the past year average hourly earnings have risen by 2.5%. Unfortunately, the consumer-price index, a standard measure of inflation, rose by 2.4%, meaning the average worker’s purchasing power hardly grew at all... Since 2010, hourly wages corrected for inflation have risen at barely 0.5% a year. The official statistics back up reports that Americans are working harder than ever just to stay even.Since the depths of the Great Recession, household incomes have increased steadily—not because wages are rising, but because Americans are working more hours. A longer view reveals the limits of these gains. Nearly eight years after the official end of the recession, median household incomes aren’t much higher than they were when the recession began, and they remain a bit lower than in January 2000. For families in the middle, it has been a lost two decades.
.. Productivity gains have been meager since the end of the Great Recession. But as this newspaper reported last week, profits at S&P 500 companies in the first quarter of 2017 were up nearly 14% over the comparable period a year ago. Firms have gains they could share with their workers, but they have chosen not to do so. Even in occupations where companies complain of labor shortages, there is scant evidence that they are responding by raising compensation.
On the Power of Being Awful
the administration’s tax “plan” offers less detail than most supermarket receipts
.. The funny thing about that confidence surge, however, was that it was very much along partisan lines — a sharp decline among Democrats, but a huge rise among Republicans. This raises the obvious question: Were those reporting a huge increase in optimism really feeling that much better about their economic prospects, or were they simply using the survey as an opportunity to affirm the rightness of their vote?
.. almost nobody ever admits being wrong about anything
.. when Bloomberg surveyed a group of economists who had predicted that Ben Bernanke’s policies would cause runaway inflation, they literally couldn’t find a single person willing to admit, after years of low inflation, having been mistaken.
.. most voters probably got the message that the political/media establishment considered Trump ignorant and temperamentally unqualified to be president. So the Trump vote had a strong element of: “Ha! You elites think you’re so smart? We’ll show you!”
.. What will Trump’s Katrina moment look like? Will it be the collapse of health insurance due to administration sabotage? A recession this White House has no idea how to handle? A natural disaster or public health crisis? One way or another, it’s coming.