Important story on Bloomberg that suggests more economists believe that the natural rate of unemployment has risen to 7-7.5% and is not at the 4-5% range. The NAIRU is very important in any discussion about inflation. If the natural rate is higher, the Fed may have to start raising rates sooner not later. The likelihood of inflation will also be higher. This is not relevant for 2010 given the output gap is still negative and unemployment is still hovering around 9.8 percent, but over the longer-run this could be a problem.
The natural rate could be higher for a host of reasons from regulatory costs to misallocation of education versus job demand. What it does mean is that the days of low inflation and below 5% unemployment will be distant memory. The chance for stagflation will be higher and nominal interest rates may find an equilibrium at a higher level. The Fed may have less room to affect growth while keeping prices stable.
This higher natural rate is consistent with the new economic view that the US will have a lower growth trajectory.
The natural rate could be higher for a host of reasons from regulatory costs to misallocation of education versus job demand. What it does mean is that the days of low inflation and below 5% unemployment will be distant memory. The chance for stagflation will be higher and nominal interest rates may find an equilibrium at a higher level. The Fed may have less room to affect growth while keeping prices stable.
This higher natural rate is consistent with the new economic view that the US will have a lower growth trajectory.
No comments:
Post a Comment