Fed Up

In: The national interest, Heft 136, S. 64

Abstract

When PIMCO founder William Gross coined the term the new normal, he both stated the obvious and offered a fresh insight. Most people understand in a visceral way that things have changed dramatically when it comes to jobs and economic opportunities since the financial crisis of 2008. Today, the US economy is like a cardiac patient on artificial life support. Flat employment, flat credit growth and falling inflation-adjusted incomes are the attributes of the new normal. The Fed cannot both pursue maximum employment and safeguard against inflation. Indeed, there is a growing doubt that the Fed can truly change the employment picture. But the political attraction of promising people higher wage and job growth, it seems, is so powerful that members of the Federal Open Market Committee and central bankers around the world cannot help themselves. Ultimately, using low interest rates in an attempt to boost demand and job creation will fail. Adapted from the source document.