Yellen is Stunned!

In her speech today, Janet shows she has no idea what drives inflation:

Key among current uncertainties are the forces driving inflation, which has remained low in recent years despite substantial improvement in labor market conditions. As I will discuss, this low inflation likely reflects factors whose influence should fade over time.

But as I will also discuss, many uncertainties attend this assessment, and downward pressures on inflation could prove to be unexpectedly persistent.

My colleagues and I may have misjudged the strength of the labor market, the degree to which longer-run inflation expectations are consistent with our inflation objective, or even the fundamental forces driving inflation.

Pray, Yellen what are the fundamental forces driving inflation? It´s certainly not the strength of the labor market.

She also unabashedly lies (or does not remember the history of which she was an active participant) when she says:

“…For this reason, the FOMC strives to look through these transitory inflation effects when setting monetary policy. Such was the case when rising oil prices pushed headline inflation noticeably above 2 percent for several years prior to the financial crisis.

If she only reread the 2008 FOMC Transcripts, she would see how worried the Bernanke Fed (of which she was a part) was about the “lethal” effect of the oil shock (something that the Greenspan Fed actually ignored). The chart illustrates.

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