Reasoning from a price change…

This is Tim Duy making the very common mistake of reasoning from a price change and so getting to the wrong conclusion:

And with regards to the issue of the first rate hike, keep watching wage growth. Weak wage growth has undoubtedly been a weight on inflation.  If that weight has lifted, then we would expect inflation to creep higher toward the 2% mark and with it the Fed’s inclination to withdraw accommodation sooner than expected.

I hope the Fed doesn´t make the same mistake and go on a tightening spree because wage growth, while low but moving up because labor supply growth is shrinking (labor force participation going down), is indicative of poor economic prospects and so lower money velocity.

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