Is the Federal Reserve Taking a Risk?

Inflation was way up in the last report to 5.6%. That isn’t surprising to anyone who has paid for gas over the last 3 months. The question that remains is what triggers are needed to alleviate this economic crunch? Here is where the Federal Reserve is taking a risk as noted in an article called This time, wage slaves can’t revolt by Colin Barr on Ben Bernanke’s leadership of the Federal Reserve in the recent past is to keep rates where they are. He is gambling that wage pressures are going to be kept in check by a slow economy and globalization. If wages are slow to rise then inflation shouldn’t be impacted by them. This allows natural supply and demand forces to even out inflation forces.

But the US employee has worked very hard over the past decade has seen little in the way of increases over that same time frame. Much of the productivity gains were swallowed up by executives and shareholders with the implied promise that employees would see theirs once the company was on firm footing. That never happened. Now we are looking at an entire decade of wage stagnation. If wages are flat and borrowing is no longer an option then the American consumer has no choice but to resist spending. Which will further the recession. But if productivity gets more attention, as it deserves, then the American worker will start to regain leverage in compensation negotiations.

I don’t fear inflation. I fear the shrinking buying power of the US worker. 


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