REPLAY: Sinai’s September Labor Market, “Easy Fiscal-Tighter Money,” the Economy and Markets Conference Call – 10/6/17

Posted October 6, 2017 by rvillareal

September Labor Market, “Easy Fiscal-Tighter Money,” the Economy and Markets

• Labor Market in September—Hurricanes Distorted?
  • Strong, Weak, Mixed?
  • Wage Inflation and the “Wage-Phillips Curve”—Status
• Big New Theme—Macro Policy Mix Ascendant 2018ff—“Easy Fiscal-Tighter Money”—Big Implications
  • Easy Fiscal is Tax Cut Plan; Tighter Money is Planned Increases in Funds Rate and Reductions in Fed Balance Sheet
  • Macro Policy Mix in an Open Economy with Flexible Exchange Rates—Backdrop Theme with Some History
    • 1960s—Kennedy-Johnson Easy Fiscal-Easy Money from 1961-65; Easy Fiscal-Tight Money 1966-69
    • 1980s—Reaganomics Easy Fiscal-Tight Money, 1980‑82; Easy Fiscal-Easy Money 1982-87
    • 2003-07—Bushonomics—“Easy Fiscal-Tighter Money”
    • 2008-12—Obamanomics—“Temporary” Easy Fiscal—“ Transitory” Easy Money than “Permanent” 2012ff
  • “Permanent” vs. “Transitory” Policy Shocks and Events—1960s, 1980s, 2003-07 “Permanent”; 2008 to 2012 “Transitory”
  • Policy Mix Implications of “Easy Fiscal-Tighter Money”—1) Stronger Economic Growth; 2) Lower Unemployment; 3) Higher Wage and Price Inflation; 4) Increased Federal Budget Deficits; 5) Rising Interest Rates; 6) Stronger Dollar; 7) Global Economic and Exchange Rate Effects
  • Trump Tax Reductions (Tax Rates) Plan—Initial Analysis
    • Policy Assumption—Legislation by Spring 2018 Retroactive to January 1, 2018—70% to 80% Odds
    • Tax Reductions Plan Size—Net $1.5 Trillion to $2 Trillion Over 10 Years Tax Rate Reductions Paid for by Fewer Exemptions, Repatriation, and Growth—Some Tax Reform
      • Corporate and Individual Tax Rate Reductions
      • Relative Size Compared with History
      • Maybe $250 Billion to $500 Billion Infrastructure Spending Stimulus
    • Growth and Unemployment, Inflation, Federal Budget Deficits, Interest Rates, Dollar Without Any Fed Reaction—Some Rough Initial Estimates and Comparisons
    • Growth and Unemployment, Inflation, Federal Budget Deficits, Interest Rates, Dollar With Fed Reaction—Some Rough Initial Estimates and Comparisons
    • Other Noteworthy Issues
      • Permanently Higher Federal Budget Deficits
      • Expectations and Interest Rates
      • Exchange Rates are Bilateral
      • Timing in the Business Cycle a Risk
    • New DE Financial Markets Forecasts—Equity Market Fair Value, Interest Rate Fair Value, Dollar Ranges

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