Contributed
by Dr. Greg George,
Director
of the Center for
Economic
Analysis,
which advises the
Atlanta
Fed on regional business
conditions.
Recent
surveys conducted throughout the
Southeast suggest that the Economy
continues its sluggish, but steady
growth pattern out of the "Great
Recession." A couple of interesting
features are starting to emerge
which contrast sharply with economic
conditions over the past year and
a half, however. Specifically,
concerns regarding inflation and
a return
to hiring have emerged.
In
order to understand what the current
data are indicating, it is important
to take pause and clarify the underlying
economics of these
somewhat
uncertain times. As everyone is aware,
oil/gas prices, stock prices, precious
metal prices and food prices have
been steadily climbing over the past
year. Many have asserted that the
easy monetary policy of the Fed is
causing this "inflation." While gas
and food prices are dramatically
impacting household budgets, it must
be made clear that these trends are
not being caused by monetary
inflation. By definition, inflation
means that ALL prices are increasing,
and a quick survey of all prices
clearly indicates that not all of
them are rising (i.e. house prices,
car prices, boat prices, and advertising
prices)
It
is true that the Fed has created
over a trillion dollars worth of
money in the past year alone, but
this money has yet to enter the money
supply. In a nutshell, banks are
holding all of the newly created
money (and then some) in reserves,
which has no impact on the amount
of money in circulation, and consequently,
no impact on inflation. However,
as banks return to normal lending
practices, we can expect some inflationary
pressures to develop.
So
where does this leave us? As mentioned
earlier, some interesting trends
are starting to emerge. Specifically,
businesses are slowly beginning to
increase work hours of their existing
employees and are looking to hire
new employees. Our business contacts
are reporting increased sales and
have suggested that consumers are
starting to spend again. If this
trend continues, we may start to
see a significant decrease in unemployment
and a return to an expanding economy.
Consequently, the Center's near-term
forecast for the Southeast is increasingly
optimistic and we anticipate
that with the growing economy, inflationary
pressures should begin in earnest
soon.
Greg
George, Ph.D. Economics
Director,
Center for Economic Analysis
Regional
Economic Information Network Affiliate
of the Atlanta Fed.
