Gary

I just the statement by Yellin on why they are going ahead with rate increases. She said " Sustained low inflation such as this is undesirable because, among other things, it generally leads to low settings of the federal funds rate in normal times, thereby providing less scope to ease monetary policy to fight recessions,"

Logical???

I agree. Thanks for your comment.

Yes, aggregate labour income will fall because of capital deepening as robots take more work away. But that does not mean that average wages will fall. They could go up as robots make their handlers more productive. The substitution of capital for labour has a long history that, in the end, made all of us better off.

Gary

If the Fed is trying to avoid wage inflation, then it is a phony issue. US labour shortages are being met by robots, not higher wages. Just read this report on what is happening in Wisconsin to find workers--- cheaper robots.

www.pressreader.com/.../281706909784713

I have no argument with your points about the decline in relative shares. It is the source of all the political woes in the US. How much is the Fed's doing is hard to measure. With real rates negative, there is room for real wages to grow. Yet, something is holding back real wage increases.

I read the article and the data are correlated but does this mean it is causal? Does wage inflation lead to a recession? At any rate, the situation is different today where wages nominally are stagnant and declining in real terms. The Fed admits as much, so they must have some other motive in mind if they pursue higher rates.

Gary. I did not think the Fed singles out sectors or specific companies in setting monetary policy. Why clip wages given the huge income inequality that is so much in the political arena? I think the Fed just cannot accept that negative real interest rates can exist in an economy that is growing. In graduate school we were all taught that the idea condition is to have non-inflationary growth and we have this and the Fed is does not like it. Go figure!

Arthur

Welcome to the club of deflationists. Today's Stats Can CPI is up 1% y/y, yet the BoC wants to move rates up!

Norm

It used to be that the Fed was "data dependent"-- I guess they just tired of the data not shaping up as they hoped. So, whose fault is that : the data or the Fed?

Gary

We have had negative real rates for several years and the world continued to turn on its axis as before. Germany still has negative nominal rates and it is doing better as is the whole of the EU.