ECONOMIST: There's A Brand New Threat To The Recovery That's Even Bigger Than Gas Prices

SEALs hosed

Photo: Marion Doss via Flickr

Karl Smith is a professor of Economics and Government at UNC Chapel Hill, and he’s one of the bloggers on the must-read modelled behaviour.Smith is a must-read, not only because he’s really smart and funny and sharp, but also because he’s correct. He correctly called the recovery, honing in on the rebound in housing construction and cars.

Anyway, he’s still optimistic, and sees job growth entering a self-sustaining phase, but does have a unique worry.

I now believe, however, a panic-y federal reserve and an over-obsession with keeping inflation expectations moored is the biggest threat.

For now I think it should be the mission of every Journalist to harp on Fed Officials as to why they are willing to tolerate half a decade of unemployment above 5% and the devastation and loss of skills associated with that but they are not willing to tolerate Core-PCE rising above 2%?

This might require balls of steel on the part of the Fed, not to turn hawkish in the face of improving job gains and higher oil, but Smith is right that to panic about inflation now — with unemployment still at 8.3 per cent — would be a major blunder.

One more thing worth noting is that if the Fed does start to get panicky it will catch a lot of people by surprise.

In our recent investor worry poll, only 2 per cent of respondents suggested that premature tightening was their main fear.

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.