New Claims

New Claims for unemployment insurance appear to be in a stall. I had resisted this conclusion for months. I thought the beginning stages of the recovery would be swifter than they turned out to be.  However, the evidence is mounting that we are going to see very little action on this variable in the near term.

The corollary to that is that job growth is not likely to turn positive in the near term. Again I was more optimistic before. I though that the deep looses in this recession would create a stronger snap-back effect. This does not seem to be the case.

We now appear to be mimicking the pattern from 92 and 2001 – a sharp drop, then a stall. However, a stall at these levels is truly painful.

I am also a bit concerned that given all of this, the Fed seems to be worried about beefing up its inflation hawk credentials. Its pretty clear to me that monetary policy will need to remain accommodative at least through the beginning of 2010 and perhaps the entire year.

Also, as long time readers of both my posts and blogosphere comments know, I am concerned that the Fed’s inflation target is too low. Not because I think we need to inflate away the consumer debt overhang.  My concern is simply that we can’t generate deeply negative real interest rates without higher inflation expectations.