The Fed's Biggest Issue Is The One It Won't Address

The Shift In Productivity's Growth Is Only Deniable To Those Who Won't Look At It

May 2nd, 2024 - Volume 10 (2024), Missive 100 (Thursday)

• The transparent opaqueness that is the Fed press conferences

• Productivity’s drive isn’t all labor; in fact its barely labor

• Labor deflation is real and real impactful

It always interesting to compare and contrast the Fed Chair Jerome Powell’s generally stiff reading of the official statement at the beginning of the afternoon’s press conference compared to the more relaxed and, in some cases, intense prose during the following question and answer session. Recall, these press conferences are still a relatively new development by the Fed, started under Bernanke’s leadership in the hopes of providing more transparency to the monetary policy process. We wonder out loud, though, how long these will last because increasingly all they are doing is adding to more confusion such as Powell yesterday talking about persistent inflation, strong labor force productivity and increasing potential all within sentences of each other. You can’t have inflation if you have strong productivity growth and expanding potential.

It has been non-labor sources that have costed more because they are driving the greater value.

The idea that has permeated in academia and the Fed is that productivity growth leads to wage growth which leads to growth in aggregate demand and, possibly, inflation. On a quantity basis that can be correct, especially if the wage growth that stems from the productivity growth leads to too much growth in aggregate demand (that is to say an outsized response). However, this assumes that productivity growth is all due to labor productivity. Yet,