Regarding Price Shocks, the Fed is “two-faced”

If oil prices rise (like in 2007-08) there´s a risk of permanently lifting inflation; but if oil prices fall, the effect on (dis)inflation is only temporary!

From Fed Watcher Tim Duy:

As I anticipated, the Fed dismissed the decline in market-based inflation expectations. They clearly believe financial markets over-reacted to the decline in oil prices, and that that decline would ultimately prove to be a one-time price shock rather than the beginning of a sustained disinflationary process.

This is why we watch core-inflation.[One would wish!]

If only symmetry held, the “Great Recession” would have been only “Recession”! And as a bonus we would not have been listening, insufferably, to “Great Stagnation” talk.

Two-faced Fed

4 thoughts on “Regarding Price Shocks, the Fed is “two-faced”

  1. If the FOMC had representatives from real estate, construction, labor, farming, would there be this bias towards dead prices instead of a live economy?

  2. This Deutsche Bank market-implied US inflation index is publicly available and based on a weighted average of the 5Y, 10Y and 30y on-the-run TIPS breakeven rates. These long run rates expectations will look through short term oil price moves and, anyway, longer term oil prices are remarkably stable. Why has the Fed dismissed this? [apologies for the long link, but it does work!]
    https://index.db.com/dbiqweb2/servlet/indexsummary?currencyreturntype=USD-Local&reportingfrequency=1&returncategory=TR&reconfigurepage=Refresh+Page&history=5&indexStartDate=10%2F28%2F2009&priceDate=10%2F28%2F2014&pricegroup=DBRVRT&redirect=benchmarkIndexSummary&indexid=8196&previndexid=8196&prevHistory=4&prevIndexStartDate=10%2F28%2F2011&rebalperiod=3&prevcurrencyreturntype=USD-Local&prevreportingfrequency=1&prevreturncategory=TR&previndexStartDate=10%2F28%2F2011&prevpriceDate=10%2F28%2F2014&indexInceptionDate=20041101&indexLaunchDate=20111212

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