Feldstein: US Economy In Good Shape

I’ve noticed that few things get people angrier than good economic news. Martin Feldstein, Ronald Reagan’s former CEA chair, writes in the WSJ that the U.S. economy is in good shape:

Fortunately the necessary financial corrections are happening when the U.S. economy is strong. We are essentially at full employment, with an overall unemployment rate of 4.9% and 2.5% among college graduates. Tight labor markets are leading to increases in hourly earnings and in the producer prices of services. Total payroll employment is up more than 600,000 in the past three months, and the ratio of employment to population, which has been at very low rates for several years, is inching up.

Households are in good shape: Real disposable income is up at a 3.5% annual rate, and the total value of homes is 7% higher than a year earlier. The Congressional Budget Office and others predict that real GDP growth this year will be above 2.5%.

(…)

Those who worry that the U.S. faces another recession often refer to the danger of an inverted yield curve—with interest rates on long-term government bonds below short-term rates. The danger reflects that, in the past, an inverted yield curve was the result of a sharp increase of short rates by the Fed to reverse rising inflation. But such a sharp increase hasn’t happened and isn’t likely to happen—even after the Fed raises short-term rates again. The yield on the 10-year Treasury note is now 1.8% while the two-year rate is 0.7% and three-month rate is 0.3%.

Feldstein thinks the Fed needs to raise rates again next month. I doubt it will happen.

Posted by on February 22nd, 2016 at 11:15 am


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