The reality of “low inflation” which the Fed cannot grasp

Over the past 10 years, core PCE inflation has averaged 1.5%. The latest print is exactly there. For the previous 14 years, core PCE inflation averaged 1.85%. No one complained, in part because there was no magic 2% target. Inflation only had to be “low & stable”. The charts help explain. With stable nominal spending (NGDP) growth, you get stable inflation. With lower and stable NGDP growth, you get lower, but still stable inflation. So there´s no mystery. If the Fed wants inflation closer to the 2% target, it has to increase the growth rate of nominal spending. There is,…

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