The Hysteresis Hypothesis

(1) Deep recessions can damage economy’s potential output and weaken recoveries. (2) In 2016 speech, Yellen explained the benefits of running a “high-pressure economy” to reverse the damage done to potential output by severe recessions. (3) Powell isn’t convinced about benefits of “positive hysteresis.” (4) Five main channels of hysteresis. (5) Labor force participation rate showing signs of recovering finally, especially for prime-age workers. (6) Job openings exceed unemployed workers by 1.0 million. (7) A good explanation for flat yield curve and punk productivity growth. (8) Potential output has the potential to be greater again. (9) Trump to Powell: Stop tapping on the brakes! (10) A Powell press conference after every FOMC meeting should give Fed more flexibility in scheduling rate hikes.