America's macroeconomic outlook

BERKELEY - Many who now worry about rising inflation in the United States may disagree, but the US Federal Reserve should take a victory lap. Just consider what the Fed has achieved over the past 2 years.

At this time in 2020, the Covid-19 pandemic had pushed employment down by a massive 14 per cent when large portions of the economy were forced to shut down. And although employment bounced back when the economy began to reopen, it nonetheless remained 7 per cent below its pre-pandemic level.

Getting back that remaining 7 per cent was always going to be difficult, because it required a re-division of labour. During the disappointing, anemic, unsatisfactory recovery from the Great Recession a decade ago, re-knitting the fabric of the labour market occurred at a pace that increased employment only about 1.3 percentage points per year. Because demand was slack and growing only very slowly during this period, it was difficult to figure out which business models would be profitable and where labour was really needed.