Tuesday, March 19, 2024 | 15:17 WIB

Confusing signals from developed economies

Jakarta, IO – In devoting close study to recent macroeconomic indicators from the U.S. and other developed economies, it is easy for the public to become confused, when attempting to distill intentions and comprehend potential implications. As I am accustomed to entertain these kinds of questions from friends, I should also like to set my thoughts regarding the matter down in writing, in the hope that it might be a little helpful in dealing with similar questions raised by many in our society. 

Let us start with the U.S., and the recent unanimous decision by the Fed to raise the Fed Fund Rate another 75-basis points, for the second time in a row. Very extraordinary from any perspective. We may understand this as an example of the monetary authorities learning from past bitter experience, notably from the time Paul Volcker served as Fed Chair in the early ‘70s. Volcker did not hesitate before making a forceful decision to calm a high rate of inflation, reaching 9.6 per cent annually (for the month of July). This seems in retrospect a bit confusing, inasmuch as all other economic indicators looked healthy: an unemployment rate of 3.6 per cent, for example. Traditionally, a 4 per cent rate of unemployment is defined as “full employment”, so 3.6 per cent is even better; nevertheless, inflation is alarming to the public, and negatively influences their approval rate of how the Biden Administration is dealing with the national economy. 

Meanwhile, a contemporary comment by Fed Chair Jerome Powell only adds confusion to the matter. Citing the rate of unemployment and new hires, he declared that his organization did not feel there was any economic recession. Wow, I think this is not a wise comment for central banker to make, to say the least. He certainly sounds mixed up, talking about data and how one feels about the data, which is not at all correct. Didn’t we used to say that “Beauty is in the eye of the beholder?” Applying this to how one feels about something, you would agree that “feeling” or “how you feel” is a very subjective, individual matter, and cannot be a yardstick that must be accepted by everybody. I should stop here before saying anything uncalled for. 

SOCIAL CULTURE

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