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Tuesday, August 03, 2010

"Bernanke Says Rising Wages Will Lift Spending"

When I saw this:

Federal Reserve Chairman Ben S. Bernanke said rising wages would probably spur household spending in the next few quarters, even as weak job gains dragged down consumer confidence.

I wondered what Bernanke was talking about. Dean Baker had the same reaction:

The NYT headline told readers that, "Bernanke Says Rising Wages Will Lift Spending." Real wages have been virtually unchanged over the last year. Let's hope that the NYT got the story wrong and that Bernanke knows this.

What do the latest data show?:

Personal incomes were ... flat in June as private wages and salaries fell.

There have been several instances lately where things Bernanke has said make me wonder how familiar he is with what recent data are telling us about the economy. Lately the Fed seems more interested justifying why it doesn't need to do anything more to boost the economy rather than grappling with actual data showing that the economy needs more help from the Fed. Maybe Bernanke is right and the next few quarters will show rising wages leading to higher spending and that will lead to a more robust recovery, but there's nothing in the current data to give me confidence that is going to happen and I don't think policy should be based upon this expectation.

    Posted by on Tuesday, August 3, 2010 at 10:08 AM in Economics, Monetary Policy, Unemployment | Permalink  Comments (31)


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