Monday, March 28, 2016

"The Fed Is Going to Let Price Inflation Run Hot"

Not Weimar '23 or Hungary in '46 (4.19 × 1016 %) hot, just hotter than one might be led to believe from the rhetoric.
From Economic Policy Journal:
Mickey Levy, Chief Economist for the Americas and Asia, Berenberg Capital Markets, LLC and member of the Shadow Open Market Committee, is correct when he writes:
The Fed cannot continue to tout that its policy is “data dependent” when recent data reflect that the Fed has effectively achieved its dual mandate, yet it doesn’t raise rates and indicates sustained extremely easy monetary policy.
With the modification of its dual mandate, this very activist Fed obviously is pursuing something more. It is basically saying that it aims to overheat the economy and that it will tolerate inflation above 2%, with the goal of further labor market improvement. Improvement includes both broader measures of unemployment—such as U-6, which includes workers that are designated as “marginally attached to the labor force” and “part-time for economic reasons”—and wage gains. In doing so, the Fed is understating the distortions it is generating and the higher risks of financial instability.
The Fed is nowhere near ready to raise interest rates high enough to fight off the developing accelerating price inflation....MORE