Let’s face it: this is good economics

“Let’s face it: This is good economics.”

So clear Jerome Powellpresident of Federal Reserve, in Wednesday’s press conference after the Fed’s latest monetary policy meeting.

He is right, even if public opinion is not entirely convinced (even if the gap between economic perceptions and reality seems to be narrowing).

Indeed, Powell is clearly faced with a dilemma that many countries would like to have:

What is the appropriate monetary policy when the news is good on almost every front?

Contrary to what you may have heard, this is not a “Goldilocks economy”; Do children’s stories well, friends!

Goldilocks found a bowl of oatmeal that wasn’t too hot or too cold. We have a very hot economy (in terms of growth and job creation) and a pleasantly cool one (in terms of inflation).

We have an economy that is very hot (in terms of growth and job creation) and pleasantly cold (in terms of inflation).

Hence the Federal Reserve’s dilemma.

He raised interest rates to try to reduce inflation, even at the risk of causing a recession.

Now that inflation has collapsed, should these rate increases be quickly reversed, or should they remain high because we haven’t, in fact, had a recession (yet)?

I believe the risk of an economic slowdown is much greater than that of a resurgence in inflation and that rate cuts should come sooner rather than later.

But that’s not the kind of discussion that will be addressed in the opinion pages.

What I want to talk about, however, is what the good economic news says politics and politics.

Before getting into the details, a brief summary of the good news of the last few weeks.

First of all, inflation.

For historical and technical reasons, the Federal Reserve targets inflation of 2%; Over the past six months, its preferred price measure has increased at an annual rate of… 2%.

Core inflation, which excludes food and energy price volatility, was slightly below target.

The Fed also looks at wage growth, not because workers caused the inflation, but because wages are typically the stickiest part of inflation and therefore an indicator of the sustainability of disinflation.

Well, the labor cost index came in lower than expected on Wednesday and is now more or less consistent with the Fed’s target.

On Thursday we learned that productivity has increased rapidly, making unit labor costs easily compatible with low inflation.

It is true that prices have not fallen again, but it is common for a specific increase in prices to occur after a major upheaval, such as the return to a peace economy after World War II or a pandemic that temporarily paralyzes normal activity.

Finally, real GDP grew a solid 3.3% in the fourth quarter, making all predictions of a recession in 2023 seem even sillier.

As often happens when there is a Democrat in the White House, the usual suspects question the official data.

But the strength of the labor market and the decline in inflation are confirmed by numerous independent surveys of consumers and businesses.

So it’s all good news.

This is perhaps the best economy we’ve had since the late 1990s.

What does all this say about politics?

Even if some on the left refuse to believe it, Pres Joe Biden he spent a lot of money on progressive priorities.

Many critics, including some Democrats, predicted that this spending would have catastrophic effects.

Perhaps the most famous is Larry Summersa senior official in the Clinton and Obama administrations, who called the 2021 American Rescue Plan fiscal policy”less responsible“of the last 40 years.

Indeed, we suffered a one-off burst of inflation, but so did other advanced countries, and the United States far outperformed its peers in other respects, likely in part because Biden’s spending relaunched growth and employment.

Now that we’ve achieved what appears to be a better Goldilocks soft landing, the Bidenomics It looks pretty good in retrospect.

Perhaps progressive economic policies don’t necessarily lead to disaster after all.

And the political consequences?

There was a time when a president leading our current economy would have been very well positioned for re-election.

But we live in an age of hyperpartisanshipin which the state of the economy appears to have much less of an effect on elections than it did a few decades ago.

Indeed, many voters – especially Republicans – appear to base their assessment of the economy on politics rather than the other way around.

Of all the good news I just presented, 71% of Republicans say the economy is getting worse, while only 7% say it is getting better.

So I don’t expect Biden to get an easy victory because of his economic success.

But the economy is doing quite well Donald Trump he insists once again that the unemployment numbers are false and claims, ridiculously, that he somehow deserves credit for the stock market rise.

And there’s been a notable shift in the Republican message, moving from the economy (even though they still claim it’s terrible) to immigration; I’ll talk about his extraordinarily cynical strategy on that topic another day.

For now, the point is that Powell is right:

This is good economics.

c.2024 The New York Times Company