When the situation stays the same for a long time it becomes the ‘new normal’! That appears to be the predicament of the US economy. Self-congratulatory because, even so, it´s doing better than many!
And the Fed presses the accelerator all the while keeping the hand-brake pulled up. Several months ago Ed Dolan put it succinctly:
So there is the paradox: The bigger the Fed’s balance sheet grows, the more it has to emphasize the efficacy of its exit strategy, but the more it talks about the exit strategy, the less real kick it gets out of further increases in its balance sheet.
How do we break out of this trap? Next question, please.
Reflecting well the spirit of ‘sameness’, the big news from today´s jobs report was that there was no news. Things and trends remained the same.
There was no change in the employment trend. Wage growth, which recently was losing to inflation, now is barely keeping up, mostly because inflation has fallen. According to Scott Sumner:
Yep, money is still too tight. The economy is gradually healing, but only because the slowing wage growth is adjusting AS to the decline in AD. And BTW, NGDP growth is still slowing a little bit, even from the low levels of 2009-12.
The chart shows that this time around the usual pattern of wage growth rising with employment has been broken, hence the AS adjustment (shift to the right) and the resulting drop in inflation. Obviously more AD is needed to get both employment and wage growth up by more.
As I illustrated in a post yesterday, even if you assume a permanent spending-level loss and a lower trend growth rate, there still remains a sizeable ‘employment gap’.
It should stand to reason that if the sequence of ‘QE pills’ administered are not having the desired effect, any reputable ‘doctor’ would fill in a different prescription. Apparently that´s not the case for central bankers, either here or in Europe!