O.J., what made me think that AG is leaning towards raising is the following:
1) we are not in a "new era" - when electricity, telephone, auto, televisions, airlines were invented, talk of a "new era" was heard and the predictions at the time did not unfold as predicted. He used the airline industry as an example. I think electricity had a much greater impact on the economy that the internet will have - utility companies also saw a run up in value in its infancy and look what it grew up to become.
2) AG admitted that productivity increases is driving wage prices down, hence, keeping inflation at bay. He talked about learning "on the job" because we have not seen this kind of reaction before. However, he does not fully believe the productivity story and does not believe that we will continue to see a rapid growth in productivity. Being out in the real world, I see businesses disguise productivity improvements due to technology solutions all the time - some of it warranted while most are not. His point about going back to the basics of evaluating markets struck me the most - the laws of supply and demand. His point was that the laws of supply and demand will eventually catch up with the labor market - driving up wages.
3) in addition to productivity improvements, AG pointed out that companies have benefited from declines in commodity prices - specifically oil and energy prices. He points out that oil has risen rapidly in a short period of time. He hypothesized that productivity numbers could have been skewed by companies due to lower raw material costs.
4) the fed has to adjust in anticipation of what the economy will do in the future. It has been widely acknowledged that a change in the rate up or down usually takes 6 months to impact the economy as a whole. If I look at the latest numbers, I'd say that inflationary pressures are high.
5) he mentioned "what history has taught us" a few times in his speech. He knows that the fed was blind-sided in 1929 because they believed in the "new era" and forgot to keep their eye on money supply. I think we will see tightening.
These are the reasons, why I think that the fed - AG- is leaning towards raising rates soon.
Dan
|
