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Saturday, June 14, 2014

'You Can’t Have A Wage-Price Spiral Without Wages'

Paul Krugman:

You Can’t Have A Wage-Price Spiral Without Wages: There was a fairly characteristic argument over dinner last night about when the Fed should tighten. I’m in the camp that says it should wait until we see wages rising at least at pre-crisis rates. The other side says that wages are a lagging indicator, and if it waits that long the Fed will be behind the curve.
My answer to this is that I’m much more worried about a slide into a Japan-style trap of low or negative inflation than I am of a return to 70s-style stagflation, and that the big risk is that the Fed will tighten much too soon.
One thing should be clear: there is no sign of wage pressure... — and also no hint that we’ve been closing the gap between actual and potential output.
So my plea to the Fed: hold your fire.

That's my pleas as well.

    Posted by on Saturday, June 14, 2014 at 09:05 AM in Economics, Inflation | Permalink  Comments (21)


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