If your premise is wrong, it´s no use hiding it underneath reams of papers, footnotes and citations

Yellen on Inflation Dynamics and Monetary Policy:

Ms. Yellen made her case like a prosecutor making a courtroom closing argument. She presented it in a 40-page speech at the University of Massachusetts in Amherst, including 40 academic citations, 34 footnotes, nine graphs and an appendix.

Central to her argument was a belief that slack in the economy has diminished to a point where inflation pressures should start to gradually build in the coming years.

Why should that be?

Those pressures aren’t asserting themselves yet, she argued, because a strong dollar and falling oil and import prices are placing temporary downward pressure on consumer prices. As those headwinds diminish, she predicted, inflation will gradually rise. The Fed needs to get in front of this, she said, and also prevent speculative forces in financial markets that could lead to “inappropriate risk-taking that might undermine financial stability.”

What she´s doing is prosecuting the people!

If she only for a minute thought outside her “Phillips Curve Box”, she would be free to entertain the hypothesis that the Fed´s tightening that has been going on for more than one year is the major force behind the fall in oil prices, commodities in general and the strengthening dollar!

Let´s just wait for the formal crowning of the “biggest mistake of the year”.

Note: I think another “postponement” will happen!

5 thoughts on “If your premise is wrong, it´s no use hiding it underneath reams of papers, footnotes and citations

  1. Marcus, I usually get confuded by you remarks regarding oil. Oi production has grown +2% in 2014, isn’t that textbook positive supply shock? How can tight money be responsible for low oil prices ?

    • Got it, I think your contention that AD (NGDP growth) is weaker than it could be is a good one, but crude inventory is basically flat, so if there is more production, there is more consumption. It is still a case for positive supply shock. I just don’t think the oil market is going through a negative demand shock.

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