A decade of economic slowdown in the United States may have returned to normal

WASHINGTON (Reuters) – During the difficult decade that followed the collapse of Lehman Brothers and the outbreak of a global financial crisis, there were good reasons to believe that the US economy was still in shambles interest rate paid on US Treasury bonds.

In one second, this seemed to change this week, adding the facts on the ground to the praiseworthy portrayal of Federal Reserve Chairman Jerome Powell of a historically rosy and protracted period of extremely low unemployment, modest inflation and sustained growth. .

She went through Amazon.com Inc. (AMZN.O) move to a minimum wage of $ 15, possibly setting the bar high for businesses in the country. Long-term bond yields have surged, signaling that growth engines will remain committed to a record-breaking recovery.

On Friday, he recorded an unemployment rate of 3.7%, its lowest level in 49 years, thus continuing the trend of job growth that many analysts, including those of the Fed, have said. They have been waiting a long time to slow down.

"Salary inflation is on the rise," said Russell Price, chief economist at Ameriprise Financial Services Inc. in Troy, Michigan.

"There is no doubt that the US labor market is perhaps the best of its generation. There is no question or debate about it. The employment report has become a report on inflation. "

Treasury bond yields rose further in the payroll report, with 10-year benchmark bond yields reaching its highest level since 2011, while US stocks fell.

The events of the week did not just match the favorable situation of the two countries, Powell and US President Donald Trump. They validated it and, in doing so, highlighted an American economy that could begin to function in the same way as before.

As an exercise in old-fashioned supply and demand, Amazon's decision to increase all starting salaries was perhaps the best example. The Fed and other officials have been anticipating for some time that the lack of available labor would encourage companies to raise wages.

"When productivity growth is faster, you have the opportunity to share some of your extra production with your workers. That's what's driving up wages, "said Vincent Reinhart, chief economist at Standish Investment Manager, and former head of the Fed's monetary affairs division.

Even old skeptics became open to the idea that a recent increase in productivity could become a trend, making comparisons with the growth period of the "great moderation" of the 1990s, also characterized by a low unemployment and strong wage growth.

Rising long-term bond rates could also signal a return to more normal conditions, offering prudent investors a reasonable return after years of poor results and easing fears of a flat or "inverted" yield curve. which would announce a loss of confidence in the market. to come up.

There is reason to believe that this can continue.

To pay Republican tax cuts and increase defense spending, the Treasury submerges the bond market at an almost record pace, gross issuance of coupons, notes and bills. bonds going up to $ 1 trillion a month for the second month ever, according to federal SIFMA data.

To sell all these bonds, the Treasury may have to pay higher rates. At the same time, a major customer, the Fed, whose $ 3,500 billion asset purchases during and after the crisis helped to foster the recovery, began to reduce its portfolio of bond obligations. $ 50 billion a month.

The development of the week has some risks and some anomalies.

The Fed, for example, is convinced that, thanks to the continued gradual rise in its rates, inflation will remain under control, even though unemployment has been falling for years and remains below the levels seen since the 1960s. inflation, as might be expected with such a hot labor market and Trump's tariffs increasing the cost of some imports, the Fed would be forced to accelerate its rate hikes and eventually end its activities.

The increase in bond yields could also wipe out Powell's positive thinking and challenge the Fed's entire strategy of gradually raising rates. High Treasury rates imply higher rates for mortgages, auto loans and a host of other forms of credit that could slow the real economy more than the Fed would like.

"Customs duties, quotas, and commercial threats are like a gun that says, let's think about renegotiating wages," Reinhart said. "It is possible that the limited influence of the slackening of resources on wages and prices is due to the fact that we were stuck, but that could change."

According to Loretta Mester, president of the Cleveland Fed, a "divergent" economy in the United States could also result in a stronger dollar – as well as a decline in exports and growth.

But as she noted, for a decade, concern has been her lingering weakness, namely that the economy was stuck in a state of affairs that distinguished economists have called " secular stagnation ".

The return of volatility, reasonable returns for savers, and wage pressure for workers can be risky.

But these are the risks of a more normal world.

"The economy is doing extraordinarily well, at least compared to recent history," said Joseph LaVorgna, director of economics for America at Natixis. "It's not the boom of the late '90s, but it's going pretty well."