How important are wages when gauging inflation?
Wages and productivity together determine unit labor costs and … low increases in unit labor costs are an essential feature of a low inflation environment. … So the fundamentals seem to me to point toward continuing, very modest changes in prices at the aggregate level because of unit labor costs. Q: If inflation is under control, then why raise interest rates? A: We started out from an unusually low level. We have to get rates back to a normal range. As the economy gradually works down a margin of underutilized resources, both labor and capital, you’ll see some growth in credit demand and to maintain an equilibrium at a low and stable inflation rate will simply require higher interest rates. Q: What is the normal range for interest rates? A: What the evidence supports is a pretty wide normal range. … What our experience would suggest is that we could have ongoing satisfactory economic growth with the real rate at the short end of the market between zero and 6(%), let’s say. I do
