The U.S. and the euro area economies — nearly one-third of global output — are currently continuing to grow at a pace which is not causing inflationary capacity pressures in labor and product markets.
The Federal Reserve and the European Central Bank are, therefore, maintaining an exceptionally easy policy stance, while envisaging gradually rising credit costs to reflect (a) an expected improvement of cyclical conditions, (b) fiscal policy changes, (c) trade balance effects on growth and employment, and (d) vastly different political circumstances in the U.S. and in Europe.
Based on the preliminary estimates for the third quarter, the U.S. economy grew in the first nine months of this year at an annual rate of 2.2 percent, marking a considerable acceleration from a 1.4 percent growth during the same period of 2016.
Predictably, that has led to the strengthening demand for labor. The jobless rate declined to 4.2 percent in September from 4.9 percent a year earlier, leading to an increase, over that period, of real average hourly earnings by 0.7 percent.
The U.S. cost and price inflation picture looks benign. The core consumer prices rose 1.7 percent in the year to September, the personal consumption expenditure index (PCEI) has stabilized at an annual rate of 1.4 percent in the three months to August, and the unit labor costs in the first half of this year increased 0.3 percent from the year before.
Still, it seems that these numbers don't look reassuring to those at the Fed fretting about the inflationary impact of "tight labor markets."