The economic policy experiment conducted in the United States is now efficient, but it would turn to disaster if wage inflation returned

The economic policy experiment currently being conducted in the United States consists in maintaining a highly expansionary fiscal and monetary policy at a time when the economy has returned to full employment. This experiment is now giving good results: continued growth, upturn in the participation rate and productivity gains, and therefore an increase in potential growth. It is going hand-in-hand with a continuous rise in the public debt ratio, in the external debt ratio (this policy maintains the shortfall in savings relative to investment), in companies’ debt leverage (which takes advantage of the very low interest rates to run up debt and buy back their shares) and in asset prices (due to the ongoing growth and the very low interest rates). We can then see that the major risk would be that the continued creation of numerous jobs would end up bringing back wage inflation (which we are not seeing at present): a rise in interest rates would then be disastrous in a configuration of high debt and asset prices. The economic policy currently being conducted in the United States is therefore based on the assumption that wage inflation will not return. But what happens if this policy is continued and the participation rate stops rising at some point, which would lead to significant pressure on the labour market?