The U.S. Economy on Autopilot, Oblivious to Political Disarray

Abstract

The labor market has tightened considerably to slightly below the level in 2007, and there is no sign of wage inflation yet, casting doubts on the robustness of the Philips curve, which established the relationship between unemployment rate and inflation. Rajeev Dhawan of the Georgia State University expects a small personal income tax cut for the middle-class with an anticipated boost in consumption and growth in 2018, leading the Fed to an interest rate hike in December. James Bullard, President of the Federal Reserve Bank of St. Louis, points to the empirical evidence that the Philips curve is flat, delinking the presumed relation between the unemployment rate and inflation as the policy guide for tightening monetary policy. Board = Conference Board, New York, New York; Fannie Mae = Fannie Mae, Washington, D.C.; IHS Markit = IHS Global Insight, Lexington, MA; GSU - EFC = Georgia State University, Economic Forecasting Center, Atlanta, Georgia; Moody's Economy = Moody's Economy, com, Westchester, Pennsylvania; Mortgage = Mortgage Bankers Association, Washington, D.C.; NAM = National Association of Manufacturers, Washington, D.C.; Perryman Gp = The Perryman Group, Waco, Texas; Royal Bank of Canada, Toronto, Ontario, Canada; S&P = Standard & Poor's, New York, New York; US Bank = U.S. Bank, Minneapolis, Minnesota; US Chamber = U.S. Chamber of Commerce, Washington, D.C.; Wells Fargo = Wells Fargo Bank, San Francisco, California.