Obstinate Inflation

By Isaac Cohen*

                  It is causing perplexity why, with unemployment at the lowest rate in half a century and economic growth last year above 3 percent, inflation in the United States remains under the central bank’s 2 per cent objective. According to Federal Reserve Board member Lael Brainard, in a speech on May 16, “price inflation has not moved up consistently as the labor market has strengthened considerably over the course of the long expansion.” https://www.federalreserve.gov/newsevents/speech/files/brainard20190516a.pdf

                  Also contributing to the perplexity is the fact that the economy received a powerful stimulus from the tax rebate approved in 2017 and from high levels of government spending. Even so, as the title of Governor Brainard speech indicates, this “disconnect between employment and inflation” is challenging accepted wisdom. In theory, according to the “Phillips curve,” as unemployment falls and growth intensifies, salaries and prices should increase. But this has not been the case, as described by Governor Brainard, “the historical relationship between resource slack and price inflation appears to have broken down.” Other members of the Federal Reserve Board have publicly expressed their concern with the stubbornness of low inflation.

                  To find an explanation, Federal Reserve Chairman Jerome Powell ordered an evaluation of central bank policy, whose results will be reviewed next month in Chicago.    

  *International analyst and consultant, former Director ECLAC Washington. Commentator on economic and financial issues for CNN en Español TV and radio, UNIVISION, TELEMUNDO and other media.

About Ramón Jiménez

Ramón Jiménez, Managing Editor de MetroLatinoUSA.Com (MLN). Graduado de la Escuela de Periodismo de la Universidad del Distrito de Columbia (UDC). Email: [email protected]

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