'While our economy continues to add jobs at a solid pace, demand appears to have softened against a backdrop of greater downside risks,' worries Fed Governor Lael Brainard.
Just look at the Atlanta Fed’s running GDP forecast for the first quarter:It’s as if the goalposts had rapidly shifted: Until late last year, it appeared only substantially softer growth would prompt the Fed to stop raising rates; now, it seems a notable acceleration is required to trigger additional hikes.
Ironically, the economic slowdown may itself be due in large part to the Fed’s own premature monetary tightening. The central bank the low official jobless rate as a sign that full employment was at hand and inflation pressures lurked just around the corner, repeating a mistake it has made several times since the Great Recession.
Instead of waiting for wage growth to pick up substantially before tightening monetary conditions, the Fed chose to act preemptively. Sadly, that means the recent spike in median wage gains, which rose 3.4% in the year February and was the strongest in this recovery, might be more of a lagging indicator than a sign of the long-sought but still-elusive recovery in American workers’ purchasing power and standard of living.Pedro Nicolaci da Costa is Communications Director at the Economic Policy Institute. He was previously a journalist and has been writing about economics and financial ma...
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