Fed Stupidity Remains "Well-Anchored"

NY Fed President John Willims reiterated complete nonsense on the Phillips Curve and inflation expectations today.

Williams Worried About Too-Low Inflation

As noted in the Wall Street Journal, N.Y. Fed’s John Williams Calls for Reassessing Inflation-Targeting Framework.

Also, consider Fed Should Be Vigilant About Too-Low Inflation

  1. The Federal Reserve needs to make sure that tight labor markets do not spark a sustained surge in inflation, but equally that inflation expectations do not get stuck too low, New York Federal Reserve Bank President John Williams said.
  2. "I concur that we must remain vigilant regarding a sustained takeoff in inflation," New York Federal Reserve Bank President John Williams said.
  3. Inflation's recent track record of riding well below the Fed's 2-percent target is, therefore, concerning, he said.

Phillips Curve Nonsense Yet Again

In case you missed it, point number one is the many times discredited Phillips Curve.

A New York Fed speech out today by John Williams asks Is the Phillips Curve Dead or Is It Just Hibernating?

The apparent breakdown in this simple price Phillips curve in the past 30 years reflects a number of structural changes in the U.S. economy. The Federal Reserve’s success in re-anchoring inflation expectations at a low level can explain the decline in inflation persistence seen in the data. However, the role of well-anchored expectations in flattening the Phillips curve is not obvious, and as HMS note, this flattening is not as clear in the wage inflation equations. This suggests other forces are at work.

We must be equally vigilant that inflation expectations do not get anchored at too low a level. So far during this expansion, core and overall PCE inflation has averaged about 1.5 percent, well below the Fed’s 2 percent target. Taking a longer perspective, over the past 25 years, core and overall inflation have both averaged 1.8 percent.

This persistent undershoot of the Fed’s target risks undermining the 2 percent inflation anchor. In this regard, research by Ulrike Malmendier and Stefan Nagel is sobering. They find that inflation expectations are heavily influenced by the inflation experience in one’s own lifetime, which implies that decades of too low inflation can become embedded in expectations. Indeed, we have seen some worrying signs of a deterioration of measures of longer-run inflation expectations in recent years.

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