The knee-jerk assumption all weekend was that a Russian invasion of Ukraine–a breakout of war, basically–would have to keep the Fed from tightening as much as expected. Certainly it rules out a half-point hike next month, right? But here is another example of how this time is different from 2010-2019. Back then, growth was so weak that any adverse shock would…
The knee-jerk assumption all weekend was that a Russian invasion of Ukraine--a breakout of war, basically--would have to keep the Fed from tightening as much as expected.But here is another example of how this time is different from 2010-2019.
Back then, growth was so weak that any adverse shock would immediately recalibrate the Fed's tightening. Take 2015, when U.S. GDP slowed from 3% in the first quarter to 2% to 1% to 0.6% in the fourth quarter, as the Chinese economy stalled and its stock market bubble popped. The Fed hadnot been able to hike rates since the 2007-09 financial crisis, despite saying since March of 2014 it was planning to do so.
We are in fact facing down"the most overheated [labor market] in postwar U.S. history," wrote Goldman economists the other day. Quite simply, the number of job openings, or jobs wanted, far outnumbers the available workers--by 4.6 million, according to their figures.is what's driving wage growth, which they expect to be running at 5% through the end of this year.
The"problem" with surging wages is that worker productivity is only running at a roughly 2% pace. That means businesses have to pay 3% more for the same amount of work to get done as last year."If sustained, such a pace would make it hard, if not impossible, for PCE inflation to return to the Fed's target," Goldman warns. If workers have more to spend, it means they won't push back as hard against price hikes--and so the inflationary pressures continue.
Wages are some of the biggest components of inflation, and they tend to be stickier than food and energy. But food and energy are big psychological drivers of inflationary expectations. And in that regard, the upward pressure on oil prices from Russia's incursion into Ukraine will only make matters worse in the near term. It's aDownload our local news and weather app for
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