In the past, lawmakers tended to preach allegiance to full employment — the lowest jobless rate an economy can sustain without stoking high inflation or other instabilities — while pulling back fiscal and monetary support before hitting that target as they worried that a more patient approach would cause price spikes and other problems.
That timidity appears less likely to rear its head this time around, reports The New York Times’s Jeanna Smialek.
President-elect Joseph R. Biden is set to take office as Democrats control the House and Senate and at a time when many politicians have become less worried about the government taking on debt thanks to historically low borrowing costs.
And the Federal Reserve, which has a track record of lifting interest rates as unemployment falls and as Congress spends more than it collects in taxes, has committed to greater patience this time around.
In the mid-to-late 1960s, Fed officials were tightly focused on chasing full employment. As they tested how far they could push the job market, they did not try to head inflation off as it crept up and saw higher prices as a trade off for lower joblessness. When America took its final steps away from the gold standard and an oil price shock hit in the early 1970s, price gains took off — and it took massive monetary belt-tightening by the Fed and years of serious economic pain to tame them.
There are reasons to believe that this time is different. Inflation has been low for decades and remains contained across the world. The link between unemployment and wages, and wages and prices, has been more tenuous than in decades past. From Japan to Europe, the problem of the era is weak price gains that trap economies in cycles of stagnation by eroding room to cut interest rates during time of trouble, not excessively fast inflation.
Site Information Navigation
Source: Read Full Article