Economic Update

ECONOMIC UPDATE….In a story about the fast growing consensus that Congress ought to enact some kind of economic stimulus package, Maura Reynolds and Richard Simon of the LA Times lay out the latest economic indicators:

A stream of unwelcome economic data has added to politicians’ sense of urgency. The Labor Department announced Wednesday that consumer prices rose 4.1% last year — the fastest in 17 years — led by soaring gasoline costs and higher prices at the supermarket. Average wages, meantime, recorded a slight drop when adjusted for inflation. Earlier this month, the department reported unemployment had hit 5%, the highest rate in two years.

Now see? That wasn’t so hard. When you report wage or spending data, you should correct for inflation. And corrected for inflation, wages were down a bit last year. Other reporters please take note.

In related news, Fed chairman Ben Bernanke said today he supported a temporary stimulus package because “fiscal and monetary stimulus together may provide broader support for the economy than monetary policy actions alone.” But is that true? With nominal interest rates still above 4%, would a fiscal stimulus package have any effect?

Beats me. But conventional wisdom suggests that fiscal stimulus doesn’t have much effect until the Fed has used up all the arrows in its monetary quiver, so Bernanke’s comment might suggest that the Fed is planning something fairly spectacular in the near future. The rumor, apparently, is that instead of waiting for its regular meeting and cutting interest rates by 25 or 50 bp, Bernanke will instead call an emergency meeting before the end of the month and announce a whopping rate cut of 75 bp. This, combined with some kind of dramatic congressional action, might keep things from getting worse.

Maybe. Stay tuned.