“Let's face it: this is a good economy.”
So clear Jerome Powellpresident of the Federal Reserve, in his press conference on Wednesday after the Fed's latest monetary policy meeting.
He is right, even if the public is not entirely convinced (although the gap between economic perceptions and reality seems to be narrowing).
In fact, Powell clearly faces a dilemma that many countries wish they had:
What is the appropriate monetary policy when the news is good on almost all fronts?
Federal Reserve Chairman Jerome Powell holds a news conference following the release of the Fed's interest rate policy decision at the Federal Reserve in Washington, U.S., January 31, 2024. REUTERS/Evelyn Hockstein /Archive
Contrary to what you may have heard, this is not a “Goldilocks economy”; Do children's stories well, friends!
Goldilocks found a bowl of oatmeal that was neither too hot nor too cold. We have an economy that is very hot (in terms of growth and job creation) and refreshingly cold (in terms of inflation).
We have an economy that is very hot (in terms of growth and job creation) and refreshingly cold (in terms of inflation).
Hence the dilemma of the Federal Reserve.
He raised interest rates to try to reduce inflation, even at the risk of causing a recession.
Now that inflation has plummeted, should those rate hikes be quickly reversed, or should they stay high because we haven't, in fact, had a recession (yet)?
I believe that the risk of an economic slowdown is much greater than that of resurgent inflation and that rate cuts should come sooner rather than later.
But that is not the type of discussion that is going to be settled in the opinion pages.
What I want to talk about, instead, is what the good economic news says about politics and politics.
Before getting into the matter, a brief summary of the good news of recent weeks.
First of all, inflation.
For historical and technical reasons, the Federal Reserve aims for 2% inflation; Over the past six months, its preferred price measure has risen at an annual rate of… 2%.
“Core” inflation, which excludes volatile food and energy prices, has been slightly below target.
The Fed also looks at wage growth, not because workers caused inflation, but because wages are typically the stickiest part of inflation and therefore an indicator of whether disinflation is sustainable.
Well, on Wednesday, the Employment Cost Index came in below expectations and is now more or less consistent with the Fed's target.
On Thursday we learned that productivity has increased rapidly, making unit labor costs easily compatible with low inflation.
It is true that prices have not fallen again, but it is normal for a specific increase in prices to occur after a major disruption, such as the return to a peace economy after World War II or a pandemic that temporarily paralyzes normal activity. .
Lastly, real GDP grew a solid 3.3% in the fourth quarter, making all those predictions of a recession in 2023 look even sillier.
As often happens when there is a Democrat in the White House, the usual suspects question the official data.
But the strength of the labor market and the decline in inflation are confirmed by numerous independent surveys of consumers and businesses.
So, it's all good news.
This is possibly the best economy we have had since the late 1990s.
What does all this say about politics?
Although some on the left refuse to believe it, the President Joe Biden has spent a lot of money on progressive priorities.
Many critics, including some Democrats, predicted that this spending would have catastrophic effects.
Perhaps the most famous is Larry Summersa senior official in the Clinton and Obama administrations, who called the 2021 American Rescue Plan the fiscal policy “less responsible” of the last 40 years.
Indeed, we suffered a one-time burst of inflation, but so did other advanced countries, and the United States has far outperformed its counterparts in other respects, probably in part because Biden's spending boosted growth and employment.
Now that we have achieved what appears to be a better-than-Goldilocks soft landing, the Bidenomics Seems pretty good in retrospect.
Perhaps progressive economic policies do not necessarily lead to disaster after all.
And the political consequences?
There was a time when a president presiding over our current economy would have been very well positioned for re-election.
But we live in a time of hyperpartisanshipin which the state of the economy seems to have much less effect on elections than it did a few decades ago.
In fact, many voters — especially Republicans — seem to base their assessment of the economy on their politics rather than the other way around.
Amid all the good news I just laid out, 71% of Republicans say the economy is getting worse, while only 7% say it is getting better.
So I don't expect Biden to get an easy victory thanks to his economic success.
But the economy is doing well enough that Donald Trump insist again that the unemployment figures are false and claim, ridiculously, that he somehow deserves credit for the rise in the stock market.
And there has been a noticeable shift in Republican messaging, moving from the economy (although they still claim it is terrible) to immigration; I'll talk about his remarkably cynical strategy on that topic another day.
For now, the point is that Powell is right:
This is good economics.
c.2024 The New York Times Company