Tuesday, December 27, 2016

Full Employment: Stimulus Spending Could Spur Inflaton More Than Growth

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*The Fed has said the economy is currently running at full employment.

*Longer-term unemployment has bottomed at higher and higher levels.

*That would tell us the coming fiscal stimulus package may not squeeze out more juice from this already maxed economy. That may drive prices more than growth.

Looking at longer-term trends, unemployment is close to its historic lows. When looking over the last 65 years, those lows keep getting higher and higher. For unemployment to go down further, it would need to break this 65-year trend. With lack of participation, low productivity and aging demographics, we expect stimulus spending to turn into inflation. Added inflation with a lack of new growth would be negative for markets (NYSEARCA:SPY).
Decreasing Maximum Employment Over The Long Term
Source: Trading Economics

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