What Will The Fed Do To Simulate Employment?

Since the use of fiscal policy to lower the unemployment rate is not possible, the use of monetary policy by the Fed is the only game in town. This article reviews the state of the economy and argues that the Fed is encouraged by the drop in the unemployment rate and that it will not make an effort to return the employment to population ratio to pre-recession levels. The Fed may have determined that the economy should move to a lower growth and employment trend.

Given that household wealth has declined by 100% following the bursting of the housing bubble, and that economic growth has been the result of asset bubbles, rather than growth in earned income, we have to ask whether another asset bubble might be used to stimulate growth. That does not seem possible. Therefore, economic growth will be constrained by the absence of asset bubbles that have supported economic growth in the absence of employment and income growth.