"If you want to create economic incentives for people to move into the expanding sectors where we actually need more workers, their wages have to go up,”
The "concern" of the inflation hawks is wages rising faster than prices. Do your replies address the issue of whether Fed policy has given/will have given us more inflation than necessary to allow relative prices to adjust to the structural changes you point out?
[What I HATE HATE HATE is El Erian, Summers et al not conditioning there outlooks on Fed instrument settings, on the Fed's reaction function to the very factors that they are pointing to. Summers is the "worst" becasue he's the one who should most know better. I know that it is in part that they are talking TO the Fed, but it ill serves public economic understanding.]
That is not a question that we have models to answer reliably: we are confident we need inflation to grease the transition since wages will not fall in shrinking sectors. We cannot reliably calculate how much inflation.
Realistically, I agree. We realistically do not expect the Fed to prevent all recessions, either. But that's the goal.
In a way, I think to say the non-omniscient Fed was a little too late with tightening in 2021 (and even if one thinks that we know it only in hindsight) makes the warning that if might be tightening too much now more credible. Type1 type 2 errors. In practice I think the greater problem (on both ends) is that the Fed is reluctant to surprise the market, so it started talking about tightening in Nov 2021 without raising FF rates until March. 2022 and may be reluctant to come to a full stop in January.
"If you want to create economic incentives for people to move into the expanding sectors where we actually need more workers, their wages have to go up,”
The "concern" of the inflation hawks is wages rising faster than prices. Do your replies address the issue of whether Fed policy has given/will have given us more inflation than necessary to allow relative prices to adjust to the structural changes you point out?
[What I HATE HATE HATE is El Erian, Summers et al not conditioning there outlooks on Fed instrument settings, on the Fed's reaction function to the very factors that they are pointing to. Summers is the "worst" becasue he's the one who should most know better. I know that it is in part that they are talking TO the Fed, but it ill serves public economic understanding.]
That is not a question that we have models to answer reliably: we are confident we need inflation to grease the transition since wages will not fall in shrinking sectors. We cannot reliably calculate how much inflation.
Realistically, I agree. We realistically do not expect the Fed to prevent all recessions, either. But that's the goal.
In a way, I think to say the non-omniscient Fed was a little too late with tightening in 2021 (and even if one thinks that we know it only in hindsight) makes the warning that if might be tightening too much now more credible. Type1 type 2 errors. In practice I think the greater problem (on both ends) is that the Fed is reluctant to surprise the market, so it started talking about tightening in Nov 2021 without raising FF rates until March. 2022 and may be reluctant to come to a full stop in January.