Reasoning from a price change (RFPC) is one of the most common mistakes made by economists, journalists and pundits.
This take from “Why the Fed won’t raise rates in October” — in five charts” is illustrative:
One of the factors weighing on inflation is the strong U.S. dollar, which is up about 14 percent over the past year against a broad basket of other currencies. A stronger dollar makes American exports less competitive in the global marketplace, and Goldman Sachs estimated that is dragging down U.S. growth by a full percentage point right now.
So it lowers growth and inflation! That should give people the hint that it´s a negative demand shock, coming from? You guessed: tight monetary policy!
How come? Interest rates remain “on the floor”. But a few (including Bernanke) know that´s a very bad indicator of the stance of monetary policy. Better if you take a look at what´s happening to NGDP growth.
Not surprisingly, it´s falling
Bringing down inflation
Strengthening the dollar
And pushing down commodity and oil prices
PS. RFPC is , at least, “consistent”: “How Global Easing Makes the Fed’s Job Harder”:
For the Fed, that is worrisome. Further dollar strength could cut into inflation more and weigh on growth. If(!) the Fed tightens while all other central banks are loosening, the dollar could strengthen even more, intensifying the problem.
The global squall that kept the Fed on hold in September is looking more and more like a storm that is gathering pace.