it is hard to see how the Fed can do much to cure this [worker mismatch] problem. Monetary stimulus has provided conditions so that manufacturing plants want to hire new workers. But the Fed does not have a means to transform construction workers into manufacturing workers.

~Narayan Kocherlakota, Minneapolis Fed President

Does Kocherlakota think monetary stimulus can do anything about nominal retail sales?  Because by my eye we are still below our pre-recession peak.


Call me old school but I tend to think businesses look for new workers when they intend to produce more product. There is not a lot of incentive to do that when you are moving less product than you were two years ago.  And, that’s before we think about the productivity gains that have occurred over the last two years.

More hiring will only occur when there are more real sales, which means that either nominal spending will go up or prices will go down. Right now it looks like the Fed is choosing the “prices will go down” strategy. In a world with nominal wage rigidities that involves a lot of pain.