The Many Obvious Dots Of Keynes, Friedman, And Fisher

The obsession with inflation is grounded in historical fact. This is true both of our recent “conundrum” as well as broader circumstances surrounding slow burning structural changes. As to the former, last year the global economy was supposed to take off, concurrently signaled by accelerating inflation rates due to what are always claimed to be tight labor markets.

The worldwide LABOR SHORTAGE!!! was supposed to lead somewhere very good; an end to a decade of increasingly dangerous malaise.

This didn’t happen, a fact more and more central bankers are trying to come to terms with. As you would expect, they are having a lot of trouble doing so. The reason is that every answer is staring right back at them from the mirror.

Federal Reserve Chairman Jerome Powell was on Capitol Hill today for the semi-annual Humphrey Hawkins dance. The Full Employment and Balanced Growth Act of 1978 used to mean something. Among other things, it correctly required a minimal level of monetary competence from the US central bank. The year of its passage was no accident, the Great Inflation a case study in monetary incompetence.

Therefore, Economists find themselves stuck between what to them may seem competing goals. On the one hand, the awful seventies. On the other, the far worse thirties. Last Friday, FRBNY President John Williams underscored this tension. Confusion, more like it:

I concur that we must remain vigilant regarding a sustained takeoff in inflation… We must be equally vigilant that inflation expectations do not get anchored at too low a level. This persistent undershoot of the Feds target risks undermining the 2 percent inflation anchor.

Which is it? It is, after all, your specific job to pick one, the right one.

Monetary officials look at the unemployment rate and see risks of huge inflation. After the last eleven years, this would be an awesome problem for them to fuss over. Yet, as Chairman Powell told Senators today, “While we view current economic conditions as healthy and the economic outlook as favorable, over the past few months we have seen some crosscurrents and conflicting signals.”

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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Gary Anderson 1 month ago Contributor's comment

But, now there is more collateral in the form of long treasury bonds to protect.

Gary Anderson 1 month ago Contributor's comment

They are afraid of their own shadows and inflation even though there is deflation all around us. Except for assets.