|Author Name||Willem THORBECKE (Senior Fellow, RIETI)|
|Creation Date/NO.||November 2018 18-E-076|
|Research Project||East Asian Production Networks, Trade, Exchange Rates, and Global Imbalances|
|Download / Links|
Unemployment has tumbled since the Global Financial Crisis (GFC). This paper investigates whether news of a tightening labor market since the GFC has generated expectations of an overheating economy or excessive Fed tightening. Evidence from the response of interest rates, exchange rates, Treasury Inflation Protected Securities and other assets indicates that investors did not expect a strong labor market to produce inflation. Neither did they expect the Fed to overreact and derail growth. The Fed has thus succeeded so far in navigating between the shoals of overheating and premature tightening.