Tue. Dec 7th, 2021


In her excellent article (“Where Did All the Workers Go?”, Great reading, 23 November) Delphine Strauss highlights the continuing mystery of the supply and demand balance in labor markets, something that is very relevant to the policy choices facing the Federal Reserve. Implicit in her piece is the question of “what happened to the natural rate, or non-accelerating inflation rate of unemployment”?

The current US unemployment rate is 4.6 percent, but what is the natural rate? The likelihood is that it has dropped a lot in recent decades to perhaps 4.5 percent before the Covid outbreak.

We see that about 4 million plus workers dropped out of the U.S. workforce, about 2.4 million of them due to early retirement.

Given the workforce and retirement numbers quoted by Strauss, the natural unemployment rate could now be more than 5 percent. If so, with real unemployment at 4.6 percent, why is the Fed stimulating the economy so actively by continuing to buy large proportions of newly issued Treasury bonds?

My feeling is that the Fed is getting things badly wrong and that we are in for a very bad attack of inflation. But, of course, more research on recent movements at the natural rate is needed and I hope the thousand or so economists left at the Fed are on it.

Paul Hallwood
Professor of Economics, University of Connecticut
Mansfield, CT, USA



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