Puzzling Surprises

Lael Brainard, a prominent member of the Fed’s board of governors, made the following admission in a recent speech, highlighting what policymakers see as economic puzzle: “At a time when the unemployment rate has fallen from 8.2% to 4.4%, core inflation has undershot our target for 58 straight months.” And: Albert Edwards, strategist at Societe Generale, is equally flummoxed: “It is incredible to think that this US recovery, the third longest in history, has seen core PCE barely exceed its 2% target and for only three months in 2012. That shows how deeply entrenched deflationary pressures are.” What is an “incredible puzzle”…

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