October 2017

Dumb & Dumber in monetary policy circles

That´s the feeling you get when reading stuff with titles such as: Central bankers have one job and they don’t know how to do it Or How should recessions be fought when interest rates are low? Further, it seems central bankers are quick to fall prey to an old and discredited theory and think inflation
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“Cost-push” & “Cost-pull” theories of inflation

In the 1960s and 1970s, “cost-push” was the great explainer of inflation. On the pro side, a group of highly influential economists: Paul Samuelson – Nobel winner James Tobin – Nobel winner Walter Heller – CEA Chair Gardner Ackley – CEA Chair Arthur Okun – CEA Chair Arthur Burns – Fed Chair On the contra

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Manufacturing Output: A depressing picture

What´s going on with industrial output best reflects the economy´s depressed state. Note that for the first 6 or 7 months of the recession, this cycle was on a par with the others. After that, mid-2008, the economy, including manufacturing output takes a surprising dive. That was what economists did not (and hardly could have)

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UK monetary policy is too tight: easing required

Not quite the line you will see across most of the market or amongst so-called monetarist economists. In fact, implied by actual nominal growth and expectations for nominal growth monetary policy is too tight. Nominal GDP growth is running at 3.7% YoY and falling, while the best measure of inflation around, the implied GDP deflator
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Yellen´s “Sunday Sermon”: A broken record

On Sunday, October 15, Yellen, among other central bank chiefs, gave a talk to a group of international bankers. Her usual story regarding low inflation was present: Inflation readings over the past several months have been surprisingly soft, however, and the 12-month change in core PCE prices has fallen to 1.3 percent. The recent softness

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Consolidation

Week ending Friday October 13th 2017 Market indicators took a breather last week after a few weeks of sustained optimism had modestly lit up growth expectations and our NGDP Forecast. The Fed questioning its understanding of the economy, especially the drivers of inflation, is perversely positive for the inflation outlook. If markets do not believe

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Bernanke proposes a “temporary back-up” to inflation targeting

Bernanke has presented a paper at Brookings titled “Temporary price-level targeting: An alternative framework for monetary policy”: Low nominal interest rates, low inflation, and slow economic growth pose challenges to central bankers. In particular, with estimates of the long-run equilibrium level of the real interest rate quite low, the next recession may occur at a time
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The consumer remains on the sidelines while inflation languishes

Stripping out hurricanes impacts on auto and gasoline sales, retail sales growth remains pitiful. That´s clear when you compare sales growth over the past two years with growth in the years before the crisis. Meanwhile, average CPI-Core inflation on average was much the same in the two periods. The only reason the Fed obsesses with

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Low wage growth is no mystery

The Fed wants to see wage growth pick up on the heels of a low unemployment rate so that inflation rises towards 2%. That´s twisted logic, but never mind. The chart below, depicting a “wage Phillips Curve”, indicates that at low unemployment rates (unemployment below 6%, say), there´s a wide range of wage growth rates.
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