March 08, 2012
It would be a big step forward if we could. Kathleen Madigan tells readers that the Fed is going to have to start worrying about inflation since unit labor costs have exceeded the core inflation rate in the last two quarters. This is shown very nicely in the graph accompanying the blog note.
Of course this graph also shows unit labor costs running way below core inflation all through 2009 and 2010. This means that companies had huge increases in profit margins over this period. It might be painful for folks at the WSJ to hear this, but there is nothing natural about the huge increases in profit margins in 2009 and 2010 and there is no reason to expect such high margins to persist forever.
If the Fed were working exclusively for the owners of corporations, then they might try to clamp down on any reduction in unemployment that could allow workers to have enough bargaining power to make up some of the ground lost in 2009 and 2010. However, if the Fed has an eye to the broader economy, the fact that corporations may not be able to sustain record profit margins indefinitely would not be a major concern.
[Thanks to Joe Seydl for calling this one to my attention.]
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