Growth And Inflation Ahead Of Jackson Hole

The Jackson Hole Symposium is to focus on “fostering a dynamic global economy” which would seem to be an appropriate topic almost every year.  A decade ago, the Great Financial Crisis was emerging, and the world economy has come a long way.  

The early and aggressive action by US officials helped create the conditions by which the world’s largest economy recovered first to the point that the Fed could exit from its extraordinary measures and begin removing accommodation. It will soon take another “first step” by allowing its balance sheet to begin shrinking. Most of the other major central banks lag behind the US by what appears to be quarters, not months. The Bank of Canada is an exception. It had eased policy with two rate cuts in the face the slide in oil prices, but began to remove this extra accommodation, and may take back the other hike in Q4.  

Two issues are frustrating central bankers. Growth and inflation. The challenge with the former increasingly appears to be seen as a function of poor productivity growth. While central banks are concerned about the low productivity, addressing it seems to be outside the reach of monetary policy. The US, UK, Germany, and Japan have seen strong employment gains, without a commensurate increase in output.   

Some argue that productivity is being mismeasured. The rise of the service sector may challenge traditional notions of productivity. If a doctor sees a dozen patients in a day, is she really twice as productive as a doctor who seen six patient? Would your favorite string quartet sound better with three? The problem with this argument is that the same arguments could have been made before the crisis when the service sector was just as large.  

There is also the possibility that the new technologies have yet to boost output. Facebook, Airbnb, Twitter, and the explosion of apps, which can do provide rudimentary health diagnosis as well as monitor sleep patterns might not be about improving productivity. In the work-life balance, maybe the technological advances are, at least at first blush, helping the latter not the former.