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Inflation Starting To Bite In The Us

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Greg Makiw one of the top US economists notes on his blog today:

"Wage inflation of 6.6 percent is likely to translate into significant price inflation unless (1) the economy become increasingly competitive, so markups fall, or (2) productivity rises at an exceptional pace. Either outcome is possible, but it is a better bet that if wage inflation continues at this pace, a troubling amount of price inflation will not be far behind.

Here is the dilemma for monetary policy: If the economy slows, as recent signs from autos and housing suggest, and inflation rises, as these labor market data suggest, what is the Fed to do? Remember that there are two terms in the Taylor rule. The Fed should lower interest rates in response to a slowing economy and raise interest rates in response to rising inflation. No one knows the Bernanke Fed's preferred coefficients on these two terms (now that would be real transparency!). We may soon start to find out."

What is happening in the US is far more interesting (unless you're looking to buy a house) than the UK at the moment. As well as rising inflation, the wheels are really falling off the housing market and the impacts are slowly filtering through to the wider economy. There are some great blogs detailing this stuff - Calculated Risk, Roubini and Mankiw.

If inflation really bites, the Fed will be shafted, although given Bernanke's prior comments he will risk high inlfation, rather than a sluggish economy.

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If inflation really bites, the Fed will be shafted, although given Bernanke's prior comments he will risk high inlfation, rather than a sluggish economy.

I don't buy it. So he will tell the world he's lost control of the economy?

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I don't buy it. So he will tell the world he's lost control of the economy?

He once made a quote about dropping money from a helicopter to stimulate a sluggish economy. He is firmly of the view that the 30's depression was made much worse the lack of action to stimulate demand.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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