When “transitory” became “one-off”

Week ending Friday 16th 2017

Inflation data, of all varieties, certainly do not support the Federal Reserve´s tightening plans. It seems even some at the FOMC are beginning to realize that fact. While in March there was just one member who thought rates should end 2017 at the 1-1.25% range, after the June meeting that number went up to four. Therefore, including Neel Kashkari who has been dissenting, there are five FOMC members who don´t plan to raise rates again this year.

Yellen, however, is still downplaying inflation weakness as “transitory”. Since the idea of transitory that spans several years is becoming harder to swallow, the new description is “one-off”:

CHAIRMAN YELLEN. The recent lower readings on inflation have been driven significantly by what appear to be one-off reductions in certain categories of prices, such as wireless telephone services and prescription drugs.

It´s really a bad sign when the chief monetary policymaker indicates she believes that inflation is a “price phenomenon”!

To the FOMC, low unemployment remains the focus, even if it is meaningless for monetary decision-making. It is, however, the fiction the Fed brandishes to justify its actions.

In his long-winded dissent justification, Neel Kashkari notes:

For me, deciding whether to raise rates or hold steady came down to a tension between faith and data.

The rest of the FOMC is still moved by faith!

Other data released over the week pointed to economic weakness, notably retail sales and industrial production.

Next week will not be one of earth-shaking data. Notably, home sales and house prices. It will be interesting to hear the views of Dudley and Evans on Monday and Fischer, who speaks on Tuesday.

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