Our market update for the week, starting in the US, via Europe and Asia and ending in Australia, where markets are on a tear.
Is it possible for the US and other industrialized countries to bring inflation down without triggering huge jumps in unemployment that economists would otherwise have predicted prior to the pandemic?
Well, maybe, according to new research from the Federal Reserve Bank of Chicago. The research examines the Phillips curve – a measure of the inverse relationship between inflation and unemployment – for 29 countries in the seven years before Covid-19 and the six quarters of pandemic recovery for which there is data, beginning in January 2021.
The authors found that in each country, including the US, the curve steepened, meaning that a decline in inflation is leading to a smaller increase in unemployment than it did before the public health crisis.
While the authors caution that their analysis is limited – there is only a year and a half’s worth of recovery data to examine – their conclusions bolster hopes that Fed rate hikes can curb high inflation without causing millions of Americans to lose their jobs.
If correct, that might improve the chances of seeing a unicorn-like “soft landing” for the US economy.
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