Photo: CNBC TV
In a recent interview with Bloomberg Businessweek, Ian Shepherdson of High Frequency Economics says that he is worried about how much the Fed values job growth.He thinks that Bernanke is being too dovish and that they are underestimating the strength of job growth, which could ultimately end in rampant inflation.
His theory: Productivity was high in the early phase of the recovery because large, capital-intensive companies were able to meet rising demand, without hiring, by working their machines harder. But now the expansion has spread to companies that are less capital-intensive and have to hire as soon as demand for their goods and services picks up. Shepherdson fears that if the Fed’s low rates stimulate strong growth in output, companies will quickly run out of people to hire and the competition for labour will drive up wages, leading to inflation.
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