The U.S. inflation news has been better lately, but the Federal Reserve should resist the temptation to lower interest rates too soon. The economy has recovered well from COVID — GDP has returned to about where economists expected it to be in early 2020 had the pandemic not occurred.
Labor force participation has recovered. It was 63.3% just before COVID and is now 62.5%. We could use the additional 2.1 million workers to relieve shortages, but the U.S. population is aging and women face additional childcare challenges with the return to offices. The ratio of job openings to job seekers is about 1.4. and structural changes in the economy — the arrival of artificial intelligence, consumers buying more goods during pandemic shutdowns and now swinging back to services — have exacerbated labor shortages. An analysis by former Fed Chairman Ben Bernanke and economist Olivier Blanchard indicates that ratio would have to fall to below 1.0 to get inflation down to 2%. In December, the Consumer Price Index was up 3.4%, year-over-year. That’s better than the 9.1% in June 2022 and 6.5% a year prior. Much progress was accomplished through deflation for goods. China’s economic troubles, a cheaper yuan against the U.S. dollar and the depressed state of the oil market helped push down U.S. import prices. China has fundamental strengths in electric vehicles, battery technology, solar panel and wind technology, lithium, rare earth minerals and other industries whose products Western economies and fast-growing Asian nations need. China will recover, and the yuan will stabilize. And as Europe pulls out of its latest funk, it will import more. All of this will end deflation for manufactured goods and commodities and raise petroleum demand and prices. Meanwhile, a tight U.S. labor market and wage pressure remain influential in services, less energy, which constitute 59% of the CPI and where inflation scored at 5.3% in December 2023. Shelter — which includes imputed rents on owner occupied houses, rental homes and apartment leases — accounts for 35% of the CPI and an even larger share of the index for core services. Private sector surveys indicate rents for new leases on apartments are falling. Most rental home and apartment leases adjust rent on an annual basis and some less frequently. Consequently, the impact of falling rents on new leases shows up in the CPI with a lag, and so …
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Labor force participation has recovered. It was 63.3% just before COVID and is now 62.5%. We could use the additional 2.1 million workers to relieve shortages, but the U.S. population is aging and women face additional childcare challenges with the return to offices. The ratio of job openings to job seekers is about 1.4. and structural changes in the economy — the arrival of artificial intelligence, consumers buying more goods during pandemic shutdowns and now swinging back to services — have exacerbated labor shortages. An analysis by former Fed Chairman Ben Bernanke and economist Olivier Blanchard indicates that ratio would have to fall to below 1.0 to get inflation down to 2%. In December, the Consumer Price Index was up 3.4%, year-over-year. That’s better than the 9.1% in June 2022 and 6.5% a year prior. Much progress was accomplished through deflation for goods. China’s economic troubles, a cheaper yuan against the U.S. dollar and the depressed state of the oil market helped push down U.S. import prices. China has fundamental strengths in electric vehicles, battery technology, solar panel and wind technology, lithium, rare earth minerals and other industries whose products Western economies and fast-growing Asian nations need. China will recover, and the yuan will stabilize. And as Europe pulls out of its latest funk, it will import more. All of this will end deflation for manufactured goods and commodities and raise petroleum demand and prices. Meanwhile, a tight U.S. labor market and wage pressure remain influential in services, less energy, which constitute 59% of the CPI and where inflation scored at 5.3% in December 2023. Shelter — which includes imputed rents on owner occupied houses, rental homes and apartment leases — accounts for 35% of the CPI and an even larger share of the index for core services. Private sector surveys indicate rents for new leases on apartments are falling. Most rental home and apartment leases adjust rent on an annual basis and some less frequently. Consequently, the impact of falling rents on new leases shows up in the CPI with a lag, and so …nnDiscussion:nn” ai_name=”RocketNews AI: ” start_sentence=”Can I tell you more about this article?” text_input_placeholder=”Type ‘Yes'”]