Bad Monetary Policy: small effect on inflation, strong impact on real growth

Some love to “data mine” for inflation. David Rosenberg, for example, twitted: Shh…don’t tell the Fed that its beloved core PCE deflator is running at 2.3% SAAR over the past 6 months (hottest in 7 years) and that the 3-month trend has shot up 2.8% — we haven’t seen this since Nov 2007. Yet another in the long list of late-cycle indicators. The fact is that for the last quarter century inflation has been tame and contained, early or late cycle. The panel below illustrates the implications of a bad monetary policy, here taken to mean a lower than ideal…

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