Post 1960’s differences in USA
There are certainly differences between
the US economy in the 1960s and today,
most notably the ‘rainbow brigade’.
Aside from war spending, there was a higher labour
force participation rate in the 1960s, while the
Fed today has drawn on past experiences and
has been more pre-emptive about tightening
policy.
However the 1960s offers clues as to
what could support inflation expectations
normalising again. For one thing, the Phillips
curve could again prove to be dormant rather
than dead. Analysis of state-level data indicates
the Phillips curve relationship is weak until the
unemployment rate drops signifcantly below
historically normal levels. Yet when it does fall
more than a half a percentage point below
historic levels, wage inflation emerges.
Furthermore, fiscal stimulus via tax cuts could
help push up the deficit again while a rolling back
in bank regulation and health care reforms could
create a more elevated era for prices akin to the
late 1960s.
EU Forecast
euf:b18:45/nws-01