The US Economy Is Not “Goldilocks”, It’s Better

“Let’s be honest, it’s a good economy,

So clear jerome powellPresident of federal ReserveIn his press conference on Wednesday after the Fed’s latest monetary policy meeting. He is right, although the public is not entirely convinced (although the gap between economic perceptions and reality appears to be narrowing). In fact, Powell is clearly facing a dilemma that many countries face: What is the appropriate monetary policy when the news is good on almost all fronts?

Contrary to what you may have heard, it is not “Goldilocks Economy” – Learn children’s stories well, friends! Goldilocks found a bowl of porridge that was neither too hot nor too cold. Our economy is both very hot (in terms of growth and job creation) and cold (in terms of inflation).

Hence the Federal Reserve’s dilemma. Interest rates were increased to reduce inflationEven at the risk of causing a recession, Now that inflation has subsided, should those rate hikes be reversed immediately, or should they remain high because, in fact, we don’t have a recession (yet)?

I believe the risk of economic recession again is far greater than rising inflation and rate cuts should be done sooner rather than later. But this is not the kind of discussion that will be settled in the opinion pages. Instead, what I want to talk about is what good economic news says about politics and policy.

Before discussing the case, a brief summary of the good news from recent weeks.

First of all, inflation, For historical and technical reasons, the Federal Reserve’s goal is inflation. 2%, Over the past six months, its preferred value measure has grown at an annualized rate of… 2%, “Core” inflation, which excludes volatile food and energy prices, has been slightly below target.

The Fed also keeps an eye on this Salary incrementNot because workers created inflation, but because Wages are usually the stickiest part of inflation And, therefore, it is an indicator of whether deflation is sustainable. Well, on Wednesday, the employment cost index came in below expectations and is now more or less in line with the Fed’s target. On Thursday we learned that productivity has increased rapidly, so unit labor costs are easily consistent with low inflation.

It is true that prices have not fallen again, but it is normal for there to be a specific rise in prices after a major disruption, such as the return of the economy to peace after World War II or a pandemic that temporarily paralyzes normal activity. .

At the end, Gross Domestic Product the real one became solid 3.3% In the fourth quarter, predictions of a recession in 2023 look even more foolish.

As usually happens when someone democrats in the white house, the usual suspects question the official data. But Labor market strength and decline in inflation confirmed By multiple independent surveys of consumers and businesses.

So, this is all good news. It can be said that this is This is our best economy since the 1990s,

What does all this say about politics?

Although some on the left refuse to believe it, President biden spent a lot of money on progressive priorities, Many critics, including some Democrats, predicted that the spending would have a disastrous effect. probably the most famous larry summersSenior Clinton and Obama administration officials who called the 2021 American Rescue Plan fiscal policy “Least responsible” in the last 40 years.,

Indeed, we suffered a one-time spike in inflation, but so did other advanced countries, and the United States has fared much better than its counterparts in other respects, perhaps partly because Biden’s spending boosts growth and jobs, Now that we’ve had a better soft landing than Goldilocks, bidenomics It feels great to look back. maybe after all Progressive economic policies do not necessarily lead to disaster,

And political consequences?

There was a time when the president presiding over our current economy was in a very good position to be re-elected. But we live in an age of hyperpartisanship, in which the state of the economy has much less impact on elections than it did a few decades ago. In fact, many voters – especially Republicans – appear to be basing their assessment of the economy on its politics rather than the other way around. Amidst all the good news I just shared, 71% of Republicans say the economy is getting worse, while only 7% say it is getting better,

so I don’t expect Biden to get an easy victory. Thanks to its economic success. but the economy is doing quite well Donald Trump Re-emphasise that unemployment figures are false And ridiculously claiming that he somehow deserves credit for the stock market boom.

For now, the point is that Powell is right: it’s a good economy,

Paul Krugman has been an opinion columnist since 2000 and a distinguished professor at the Graduate Center of the City University of New York. He won the Nobel Prize in Economics in 2008 for his work on international trade and economic geography. @Paul Krugman

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