Some Economists Think the Fed is Lying (CNN): When Federal Reserve policy-makers announced this week that they were leaving short-term interest rates at 40-year lows, they also said the labor market was weakening and that inflation could be in for a fall. Some economists thought that was a bunch of malarkey. “The Fed wants everyone to know that rates are going nowhere and will not let facts get in the way,” said Joel Naroff, president and chief economist at Naroff Economic Advisors in Holland, Pa. According to some analysts, the Fed has been once bitten by its inability to communicate with the bond market, and now it’s twice shy about sparking the kind of bond selloff that followed its June policy decision.
Is Rising Productivity Resulting in Job Losses or Vice Versa? (Kasriel, Northern Trust): In a nutshell, I believe the facts and theory both support the notion that, rather than productivity growth resulting in job layoffs, just the opposite is at work here. To wit, job layoffs are resulting in productivity growth. The essence of my argument goes back to an Econ 101 lecture in which we learned (or should have) the difference between a movement along a demand or supply curve and a shift in a curve. If my interpretation of the facts is correct (there’s always a first time), then the Fed’s accommodative monetary policy is short-circuiting a necessary economic adjustment process and is destined to lead to a worsening trade-off between economic growth and inflation.... If productivity were increasing because all workers were becoming more productive, that is, the productivity schedules were shifting outward, then the Fed could print more money with out causing higher absolute inflation. (Of course, by printing more money under these circumstances, the Fed would be creating higher relative inflation, which would cause distortions in the economy. But that’s another commentary). The Fed believes in the outward-schedule-shift in productivity growth. So, it believes it can print more money without causing higher inflation. But if observed productivity is rising because of movements up along the productivity schedules, then the Fed’s printing of more money will ultimately result in higher absolute inflation. Is it any wonder, then, that the greenback is under downward pressure and commodity prices are trending higher?
