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Tyler Cowen

Economists Don’t Actually Know How the Fed Affects Jobs

Pundits have their opinions about rate hikes "choking off growth." But the facts demand a humble agnosticism.

The data lead to: “I don’t know.”

The data lead to: “I don’t know.”

Photographer: Image Source, via Getty Images

Something is happening in the U.S. economy. The question is what.

As the rate of U.S. price inflation finally breaks through 2 percent and unemployment has fallen to 3.9 percent and wage growth picks up, the Fed talks of ongoing rate hikes. Will a tighter monetary policy choke off a labor market recovery? Probably not. It turns out economists, forecasters and pundits don’t actually have a firm handle on the relationship between these variables.