The Labor Market remains “Strong”

Powell is in the same corner as Yellen. According to Powell:

“Inflation is a little bit below target, and it’s kind of a mystery,” he told CNBC in August. “You would have expected, given that we’re getting tighter labor markets, that we’d have a little higher inflation. I think that what that gives us is the ability to be patient.”

When he takes over in February, he can sit on his hands and wait! For a long time we cannot see any relation between the two, as the chart illustrates.

For the last two years, wages have remained docile, just as inflation.

The drop in unemployment reflects moves in the ratio of its two determinants: the ratio of employment to population and the labor force participation rate. With this ratio on an uptrend since the start of the year, the unemployment rate is falling to historically low levels. “Mysteriously”, so is inflation!

When central bankers keep saying observed inflation is a mystery, you really cannot expect much from them. The only thing to hope for is that their ignorance will not drive the economy into a new recession (within the long depression).

PS. Yellen to Trump


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