All of this is important in the backdrop of Mr. Ben Bernanke’s recent announcement the Federal Reserve soon will end its stimulus policies. As many readers will doubtless know, a vicious argument between continued stimulus (the Keynesian argument) and austerity (the classicalist argument) has raged these past two or three years. Many economists, including me, have argued the benefits of stimulus have become trivial compared to its costs. With the Fed ending its stimulus, that argument seems to have won, but that does not signal wholly good news. Mortgage interest rates are rising, as are yields on bonds. Both signal inflationary potential, but may also be part of an improving outlook for housing and financial markets. Either way, the Fed feels it is time to ease back on its monetary stimulus. The problem remains labor markets are performing disastrously. Current job creation rates won’t get the U.S. back to full employment until sometime in the next decade. Good times are not around the corner.
Michael J. Hicks, Ph.D., is the director of the Center for Business and Economic Research and an associate professor of economics at Ball State University. Contact him at email@example.com.