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The "Money Illusion" Keeps the Economy Hot | Juliette Declercq
Forward Guidance
The Importance of Long Term Inflation Expectations
When the price of commodities goes up that can be one of two causes. Number one demand because the economy is running hot and if that were the case you would expect the ISM manufacturing new orders index to also rise. But we had so far post crisis wasn't much of a supply shock. I mean I think some argued it was in 2021 but with wages actually picking up as well it looked less and more like a persistent inflation. The first effect of inflation is obviously higher price, it's contractionary. But when you actually have a labor force which has very strong bargaining power, what you can do about inflation is basically asking for a higher wage. And that's exactly what's happening
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