United States: The overheating theory revisited

The United S tates can be said to be implementing the “overheating theory”: despite its return to full employment, fiscal policy is highly expansionary, monetary policy was highly expansionary for a long time and remains expansionary today. Demand is therefore being stimulated despite the fact the economy has returned to full employment. We call this implementing the “ overheating theory”. How should this policy now be assessed against its normal objectives? Has the participation rate risen or the unemployment rate fallen further than usual? Yes, to a small degree; Has labour productivity grow n faster , given the need for companies to produce more without being able to hire more? No; Has there been an acceleration in wages or in labour costs following the demand stimulus or has inflation risen? Yes, to a small degree. A few small effects of the overheating policy are therefore visible.