Here’s an economic head scratcher. Remember a few years ago when economists were worried about “quantitative easing”, basically the fact that the Fed was pumping dollars into the economy and keeping interest rates low to help the wavering economy continue to recover? The predictions were that there would soon be a day of reckoning. As the economy improved, the reasoning went, jobless rates would go down and inflation would either balloon out of control due to all of the dollars poured into the economy, or the Fed would have to raise interest rates quickly to contain inflation.
That seemed like a reasonable hypothesis. Even the Fed had been giving indications it would likely increase interest rates at least four times this year. And, they have increased rates twice over the past several months. But the scenario hasn’t played out exactly as expected.
Yes, the job market has tightened up to the point where they are nearing levels not seen since the early 1970s. Manufacturing jobs are strong. The construction industry is booming, household incomes are rising and one might expect these factors would put upward pressure on inflation rates. But inflation still remains below what economists predicted.
This has led the Fed to consider backing off on their initial plans to raise interest rates. The concern being that if they act too aggressively, they may push the economy into stagnation or possibly a deflationary period that would stifle economic growth.
With no decisive economic action foreseen in the near future, expect the economy to continue its march forward. As long as companies can continue to find productive workers that can help them keep up with the current growth, we can enjoy what has become one of the longest periods of economic expansion in decades.
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