Why in the world would the Federal Reserve governors think that the absence of inflation was a mystery
Federal Reserve officials this week are expected to raise interest rates for the first time in nine years on the expectation that employment and inflation will hit targets reflecting a healthy U.S. economy.
But Fed officials face a troubling question: Jobs are on track, but inflation isn’t behaving as predicted and they don’t know why. Unemployment has fallen to 5%, a figure close to estimates of full employment, while inflation remains stuck at less than 1%, well below the Fed’s 2% target.
as reported by the Wall Street Journal?
Let me offer a hint: it’s in what you’ve been pumping up—financial assets and consumption items purchased by the wealthiest income earners. I’m sure that some of my readers will offer other suggestions.
Here’s another one: you’ve got to start treating the world economy as one thing rather than 200 different things.
1) Massaged employment numbers do not full employment make.
2) There is such a thing as deficient aggregate demand.
3) The numerous supply-side measures of the last eight years have failed to equilibrate demand as the neoclassical school insists must happen.
4) Every country is counting on exports to save the day, driving down demand and incomes to make prices more competitive
4a) Global exports must equal global imports. Without someone buying all those discounted goods, export-focused policies generate global deflationary pressure.
I think that’s a really essential point. Presently, global exports don’t equal global imports and the difference is being financialized.
“Let me offer a hint: it’s in what you’ve been pumping up—financial assets and consumption items purchased by the wealthiest income earners.”
Just as the unemployment rate is a faux statistic… Looking at a large proportion of expenditures for the Average Joe….
Health care costs are rising at what, 7-9% ?
Rents are way up; and housing prices artificially propped up.
For those of us who eat food, take trip to the store. Chat up, as I do, the check out clerks about prices, and stealth price increases through portion declines.
I don’t buy 1% inflation any more than I do 5% unemployment.
For those of us who eat food, take trip to the store. Chat up, as I do, the check out clerks about prices, and stealth price increases through portion declines.
Charmin toilet paper seems to be just a little bit narrower than it was at the start of the year. Maybe I’m imagining that, but I don’t think so. And I know for certain that TP in public restrooms became narrower some time back, though I think it’s getting even less wide, based on what I saw at Disney World over the weekend.
Perhaps I should say “experienced” instead of “saw”….
“I don’t buy 1% inflation”
The billion price project does.
http://bpp.mit.edu/usa/
They are puzzled because the computer model (equations) are not working. (sound familiar?) They are like the little girl in the back seat with her plastic steering wheel. For years, the car has turned the same way she did, but now, the car is not responding. She thinks something is broken, but it never worked.
Through the magic of credit based money, everybody can be net exporters. When you remove the guardrails, you really should not be surprised when the car does not follow the previous path.
The credit instruments backing the money increase to accommodate what would be impossible in a sound money world. It is not intuitive, but neither is lending money you do not have.
You can lead a horse to water……