Inflation, interest rates, and the Fed

[Arraya]

Maybe if we all hold hands and pray we can get some growth.

[XBoxBoy]

First off, given the fed’s ridiculous track record of forecasting, I don’t see any reason to think they know what they’re going to face in the future. It might not be so bad if they weren’t totally enthralled with their ideology and beholden to the bankers interests, but they are so that’s that. Also, remember that on top of their horrible forecasting, and bad ideology, the fed is caught up in the need to be cheerleaders for the economy, trying to manage perceptions.

Once you remove all the comments from fed officials, the article starts to make more sense. Unfortunately, there isn’t a whole lot left or much substance after removing the fed officials comments. There’s the often heard concerns of the economy faltering, housing slowing more or even the dreaded threat of deflation.

But here’s a couple of things the article omits that seem pretty relevant. 1) There are tremendous imbalances and misallocations in the economy that are just being ignored. 2) With globalization, we’ve effectively added a huge surplus of workers, but not as big an increase in other resources such as energy and commodities.

While I don’t know that my crystal ball is that much better than the feds, I would venture to guess a couple of things. First, unemployment will stay high which means we definitely will not see wage inflation. (And stagflation without wage inflation seems pretty unlikely) Second, capital will continue to be misallocated from productive investments into speculative gambles. Third, countries like China will continue their policy of beggar they neighbor with their currency manipulation.

Put all this together, and seems to me the most likely scenario is a floundering economy, with a clueless fed holding interest rates low for as far as we can see, (And probably doing more printing of money) while speculative bubbles appear and pop causing more economic instability. Price increases in certain items will be significant, but other items will fall in price, allowing the govt (the fed) to claim inflation is well contained and maybe even to claim that we have positive growth. Ultimately this bubble economy and incompetent fed will be changed, but not any time soon.

Like other posters, I’d have to agree the likelihood of inflation in the near term seems pretty remote. Consequently, I seriously doubt the fed will be tightening any time soon. And if the markets head south, in the near future, look for a return of fed printing money and buying bonds.

[XBoxBoy]

First off, given the fed’s ridiculous track record of forecasting, I don’t see any reason to think they know what they’re going to face in the future. It might not be so bad if they weren’t totally enthralled with their ideology and beholden to the bankers interests, but they are so that’s that. Also, remember that on top of their horrible forecasting, and bad ideology, the fed is caught up in the need to be cheerleaders for the economy, trying to manage perceptions.

Once you remove all the comments from fed officials, the article starts to make more sense. Unfortunately, there isn’t a whole lot left or much substance after removing the fed officials comments. There’s the often heard concerns of the economy faltering, housing slowing more or even the dreaded threat of deflation.

But here’s a couple of things the article omits that seem pretty relevant. 1) There are tremendous imbalances and misallocations in the economy that are just being ignored. 2) With globalization, we’ve effectively added a huge surplus of workers, but not as big an increase in other resources such as energy and commodities.

While I don’t know that my crystal ball is that much better than the feds, I would venture to guess a couple of things. First, unemployment will stay high which means we definitely will not see wage inflation. (And stagflation without wage inflation seems pretty unlikely) Second, capital will continue to be misallocated from productive investments into speculative gambles. Third, countries like China will continue their policy of beggar they neighbor with their currency manipulation.

Put all this together, and seems to me the most likely scenario is a floundering economy, with a clueless fed holding interest rates low for as far as we can see, (And probably doing more printing of money) while speculative bubbles appear and pop causing more economic instability. Price increases in certain items will be significant, but other items will fall in price, allowing the govt (the fed) to claim inflation is well contained and maybe even to claim that we have positive growth. Ultimately this bubble economy and incompetent fed will be changed, but not any time soon.

Like other posters, I’d have to agree the likelihood of inflation in the near term seems pretty remote. Consequently, I seriously doubt the fed will be tightening any time soon. And if the markets head south, in the near future, look for a return of fed printing money and buying bonds.

[XBoxBoy]

First off, given the fed’s ridiculous track record of forecasting, I don’t see any reason to think they know what they’re going to face in the future. It might not be so bad if they weren’t totally enthralled with their ideology and beholden to the bankers interests, but they are so that’s that. Also, remember that on top of their horrible forecasting, and bad ideology, the fed is caught up in the need to be cheerleaders for the economy, trying to manage perceptions.

Once you remove all the comments from fed officials, the article starts to make more sense. Unfortunately, there isn’t a whole lot left or much substance after removing the fed officials comments. There’s the often heard concerns of the economy faltering, housing slowing more or even the dreaded threat of deflation.

But here’s a couple of things the article omits that seem pretty relevant. 1) There are tremendous imbalances and misallocations in the economy that are just being ignored. 2) With globalization, we’ve effectively added a huge surplus of workers, but not as big an increase in other resources such as energy and commodities.

While I don’t know that my crystal ball is that much better than the feds, I would venture to guess a couple of things. First, unemployment will stay high which means we definitely will not see wage inflation. (And stagflation without wage inflation seems pretty unlikely) Second, capital will continue to be misallocated from productive investments into speculative gambles. Third, countries like China will continue their policy of beggar they neighbor with their currency manipulation.

Put all this together, and seems to me the most likely scenario is a floundering economy, with a clueless fed holding interest rates low for as far as we can see, (And probably doing more printing of money) while speculative bubbles appear and pop causing more economic instability. Price increases in certain items will be significant, but other items will fall in price, allowing the govt (the fed) to claim inflation is well contained and maybe even to claim that we have positive growth. Ultimately this bubble economy and incompetent fed will be changed, but not any time soon.

Like other posters, I’d have to agree the likelihood of inflation in the near term seems pretty remote. Consequently, I seriously doubt the fed will be tightening any time soon. And if the markets head south, in the near future, look for a return of fed printing money and buying bonds.

[XBoxBoy]

First off, given the fed’s ridiculous track record of forecasting, I don’t see any reason to think they know what they’re going to face in the future. It might not be so bad if they weren’t totally enthralled with their ideology and beholden to the bankers interests, but they are so that’s that. Also, remember that on top of their horrible forecasting, and bad ideology, the fed is caught up in the need to be cheerleaders for the economy, trying to manage perceptions.

Once you remove all the comments from fed officials, the article starts to make more sense. Unfortunately, there isn’t a whole lot left or much substance after removing the fed officials comments. There’s the often heard concerns of the economy faltering, housing slowing more or even the dreaded threat of deflation.

But here’s a couple of things the article omits that seem pretty relevant. 1) There are tremendous imbalances and misallocations in the economy that are just being ignored. 2) With globalization, we’ve effectively added a huge surplus of workers, but not as big an increase in other resources such as energy and commodities.

While I don’t know that my crystal ball is that much better than the feds, I would venture to guess a couple of things. First, unemployment will stay high which means we definitely will not see wage inflation. (And stagflation without wage inflation seems pretty unlikely) Second, capital will continue to be misallocated from productive investments into speculative gambles. Third, countries like China will continue their policy of beggar they neighbor with their currency manipulation.

Put all this together, and seems to me the most likely scenario is a floundering economy, with a clueless fed holding interest rates low for as far as we can see, (And probably doing more printing of money) while speculative bubbles appear and pop causing more economic instability. Price increases in certain items will be significant, but other items will fall in price, allowing the govt (the fed) to claim inflation is well contained and maybe even to claim that we have positive growth. Ultimately this bubble economy and incompetent fed will be changed, but not any time soon.

Like other posters, I’d have to agree the likelihood of inflation in the near term seems pretty remote. Consequently, I seriously doubt the fed will be tightening any time soon. And if the markets head south, in the near future, look for a return of fed printing money and buying bonds.

[XBoxBoy]

First off, given the fed’s ridiculous track record of forecasting, I don’t see any reason to think they know what they’re going to face in the future. It might not be so bad if they weren’t totally enthralled with their ideology and beholden to the bankers interests, but they are so that’s that. Also, remember that on top of their horrible forecasting, and bad ideology, the fed is caught up in the need to be cheerleaders for the economy, trying to manage perceptions.

Once you remove all the comments from fed officials, the article starts to make more sense. Unfortunately, there isn’t a whole lot left or much substance after removing the fed officials comments. There’s the often heard concerns of the economy faltering, housing slowing more or even the dreaded threat of deflation.

But here’s a couple of things the article omits that seem pretty relevant. 1) There are tremendous imbalances and misallocations in the economy that are just being ignored. 2) With globalization, we’ve effectively added a huge surplus of workers, but not as big an increase in other resources such as energy and commodities.

While I don’t know that my crystal ball is that much better than the feds, I would venture to guess a couple of things. First, unemployment will stay high which means we definitely will not see wage inflation. (And stagflation without wage inflation seems pretty unlikely) Second, capital will continue to be misallocated from productive investments into speculative gambles. Third, countries like China will continue their policy of beggar they neighbor with their currency manipulation.

Put all this together, and seems to me the most likely scenario is a floundering economy, with a clueless fed holding interest rates low for as far as we can see, (And probably doing more printing of money) while speculative bubbles appear and pop causing more economic instability. Price increases in certain items will be significant, but other items will fall in price, allowing the govt (the fed) to claim inflation is well contained and maybe even to claim that we have positive growth. Ultimately this bubble economy and incompetent fed will be changed, but not any time soon.

Like other posters, I’d have to agree the likelihood of inflation in the near term seems pretty remote. Consequently, I seriously doubt the fed will be tightening any time soon. And if the markets head south, in the near future, look for a return of fed printing money and buying bonds.

[davelj]

[quote=Eugene]

There’s absolutely no reason to expect high inflation in foreseeable future, especially coupled with low growth and high unemployment.[/quote]

Agreed. There’s massive slack in the economy between high unemployment and WAY below-trend capacity utilization. It’s going to take several years for that slack to get taken up. The question isn’t what inflation is going to be like over the next 3 or so years, it’s what it’s going to be like 4+ years out and how effective the Fed is at soaking up liquidity by that time. And the jury is out, by definition, on that one.

[davelj]

[quote=Eugene]

There’s absolutely no reason to expect high inflation in foreseeable future, especially coupled with low growth and high unemployment.[/quote]

Agreed. There’s massive slack in the economy between high unemployment and WAY below-trend capacity utilization. It’s going to take several years for that slack to get taken up. The question isn’t what inflation is going to be like over the next 3 or so years, it’s what it’s going to be like 4+ years out and how effective the Fed is at soaking up liquidity by that time. And the jury is out, by definition, on that one.

[davelj]

[quote=Eugene]

There’s absolutely no reason to expect high inflation in foreseeable future, especially coupled with low growth and high unemployment.[/quote]

Agreed. There’s massive slack in the economy between high unemployment and WAY below-trend capacity utilization. It’s going to take several years for that slack to get taken up. The question isn’t what inflation is going to be like over the next 3 or so years, it’s what it’s going to be like 4+ years out and how effective the Fed is at soaking up liquidity by that time. And the jury is out, by definition, on that one.

[davelj]

[quote=Eugene]

There’s absolutely no reason to expect high inflation in foreseeable future, especially coupled with low growth and high unemployment.[/quote]

Agreed. There’s massive slack in the economy between high unemployment and WAY below-trend capacity utilization. It’s going to take several years for that slack to get taken up. The question isn’t what inflation is going to be like over the next 3 or so years, it’s what it’s going to be like 4+ years out and how effective the Fed is at soaking up liquidity by that time. And the jury is out, by definition, on that one.

[davelj]

[quote=Eugene]

There’s absolutely no reason to expect high inflation in foreseeable future, especially coupled with low growth and high unemployment.[/quote]

Agreed. There’s massive slack in the economy between high unemployment and WAY below-trend capacity utilization. It’s going to take several years for that slack to get taken up. The question isn’t what inflation is going to be like over the next 3 or so years, it’s what it’s going to be like 4+ years out and how effective the Fed is at soaking up liquidity by that time. And the jury is out, by definition, on that one.

[Rich Toscano]

As far as slack and all that goes, I agree with John Hussman’s view:

“The Phillips Curve is simply a standard economic argument about relative scarcity. It says that when the labor markets are tight, nominal wages rise faster than the rate of general inflation (i.e. real wages rise), and when unemployment is high, nominal wages rise slower than the rate of general inflation (i.e. real wages fall). As we observed in the 1970’s, high unemployment can exist in concert with high rates of inflation. All that happens, in that case, is that wages tend to rise slower than prices. Assuming labor productivity is growing as well, real wages don’t keep pace with productivity growth. In any event, unemployment emphatically does not prevent the inflationary consequences of reckless creation of government liabilities.”

[Rich Toscano]

As far as slack and all that goes, I agree with John Hussman’s view:

“The Phillips Curve is simply a standard economic argument about relative scarcity. It says that when the labor markets are tight, nominal wages rise faster than the rate of general inflation (i.e. real wages rise), and when unemployment is high, nominal wages rise slower than the rate of general inflation (i.e. real wages fall). As we observed in the 1970’s, high unemployment can exist in concert with high rates of inflation. All that happens, in that case, is that wages tend to rise slower than prices. Assuming labor productivity is growing as well, real wages don’t keep pace with productivity growth. In any event, unemployment emphatically does not prevent the inflationary consequences of reckless creation of government liabilities.”

[Rich Toscano]

As far as slack and all that goes, I agree with John Hussman’s view:

“The Phillips Curve is simply a standard economic argument about relative scarcity. It says that when the labor markets are tight, nominal wages rise faster than the rate of general inflation (i.e. real wages rise), and when unemployment is high, nominal wages rise slower than the rate of general inflation (i.e. real wages fall). As we observed in the 1970’s, high unemployment can exist in concert with high rates of inflation. All that happens, in that case, is that wages tend to rise slower than prices. Assuming labor productivity is growing as well, real wages don’t keep pace with productivity growth. In any event, unemployment emphatically does not prevent the inflationary consequences of reckless creation of government liabilities.”

[Rich Toscano]

As far as slack and all that goes, I agree with John Hussman’s view:

“The Phillips Curve is simply a standard economic argument about relative scarcity. It says that when the labor markets are tight, nominal wages rise faster than the rate of general inflation (i.e. real wages rise), and when unemployment is high, nominal wages rise slower than the rate of general inflation (i.e. real wages fall). As we observed in the 1970’s, high unemployment can exist in concert with high rates of inflation. All that happens, in that case, is that wages tend to rise slower than prices. Assuming labor productivity is growing as well, real wages don’t keep pace with productivity growth. In any event, unemployment emphatically does not prevent the inflationary consequences of reckless creation of government liabilities.”

[Author]

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