November 3, 2018

We don´t have a “high pressure” economy, but a “low pressure” one

Atlanta Fed Bostic writes “On Maximizing Employment, a Case for Caution”: When the actual unemployment rate declines substantially below the natural rate—highlighted as the red areas in the following chart—the economy has moved into a “high-pressure period.” For the purposes of this discussion, the important thing about high-pressure economies is that, virtually without exception, they are followed by a recession. Why? Well, as I described in a recent speech: “One view is that it is because monetary policy tends to take on a much more ‘muscular’ stance—some might say too muscular—at the end of these high-pressure periods to combat rising nominal… Read More