A Benjamin Cole post
Some Fed watchers took heart when Stanley Fischer, smart guy and former Israeli central bank chieftain, took the No. 2 slot at the U.S. Federal Reserve in 2014. After all, Fischer had guided Israel through the 2008 global tight-money debacle, by using his central bank to counteract the worst effects of the worldwide slowdown. Fischer printed shekels, and it worked.
But the Fed has dybbuks (spirits), which have taken over Fischer. Some call it the Fedborg.
“Given the apparent stability of inflation expectations, there is good reason to believe that inflation will move higher as the forces holding down inflation dissipate further,” Fischer just yesterday told the ongoing Fed confab in Jackson Hole.
Really? What stability is that?
Another chart (both swiped from Tim Duy, btw):
There in fact seems to be a stable trend on the two charts—downwards, that is.
Of course, I can remember when the markets anticipated double-digit inflation, and homebuyers took out 18% mortgages in the United States. So what makes inflation expectations stable?
If the Fed would raise rates now, when would it not raise rates?
A Strange Time
We live in strange times, when a hysterical squeamish prissiness about microscopic rates of inflation passes for monetary policy.
Remember the much-loved “Inflation Fighter” President Ronald Reagan? Or the towering iron-willed price-stablizer and central banker Paul Volcker?
In Reagan’s last full year in office, 1988, the CPI was rising at 4.4%. Inflation then accelerated to 4.6% the next year.
President Obama and Fed Chief Janet Yellen (and Fischer) make Reagan and Volcker look about as tight with money as wastrel winos headed to the corner liquor store.
I will leave it to pathological sociologists to explain the current phobia about inflation (as dubiously measured, no less). It is certainly not about macroeconomics.
I just wish we could get back to 1980s and 1990s, when the U.S. had robust growth and moderate inflation. Seems like a long, long time ago now.