An increase in the FF target rate is “a pill that must be swallowed”!

One think I know is that I will have fun reading comments on the GDP release. For example, “GDP Waves Yellow Flag at the Fed”:

The hope is that the inventory swing is just temporary, and that GDP will soon be moving along at a strong enough clip that the economy will have no problem swallowing a rate increase. The concern is that businesses cut inventories because they are worried that the global slowdown will hurt them, and that those qualms will affect their hiring decisions.

The GDP figures might mask what’s happening with demand, but sometimes the mask matters.

Unfortunately, it´s not masking anything. Final nominal sales (FSDP) follows closely on the heels of nominal spending (NGDP). They´re both chasing “zero” growth!

And while the Fed has confidence that inflation will “move towards target”, it has moved away and stayed away. Furthermore, with (“unmasked”) demand weakening by the quarter, there´s no chance it will do so!

Pill to swallow

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