They will still be looking when hell freezes over!

Today´s PPI:

Overall producer prices decreased 1.6% in October from a year earlier, the 10th straight year-over-year decline and the biggest annual fall since the government started publishing the series in 2009. Core prices were up 0.4% from a year earlier.

Those gauges have been historically weak this year amid low oil prices, a strong dollar and weak demand abroad.

Federal Reserve officials are looking for evidence of firming inflation before they raise interest rates from near zero, where they have held since 2008. Officials have said they want to be “reasonably confident” inflation will move toward the Fed’s 2% target before liftoff.

However, “low oil prices (note that it´s not falling oil prices anylonger), and a strong dollar” are the consequence of weak domestic demand (falling NGDP growth). Weak demand abroad is partly due to weak demand in the US!

9 thoughts on “They will still be looking when hell freezes over!

  1. Off topic question: I’ve been wondering about the impact of the energy “crash” on MP. Suppose the Fed were level targeting NGDP and something like the crash in oil prices occurred as perhaps a supply side story. Wouldn’t that impact NGDP and thus the Fed would offset it?

      • Marcus, thank you. So from the MP point of view it doesn’t matter what causes an impact to NGDP, just that it impacts it. The decrease in energy prices could be organically offset by, say, higher unemployment with no shift in spending on other things, and in a NGDPLT regime, policymakers wouldn’t have to nitpick at that phenomenon at all, it would just show up in the data and they would “do the needful.”

  2. @Marcus, dajeeps
    Australia and Brazil are economies that depend on commodities a lot. Scott Sumner has a few posts on Australia, and most people I talk too about nominal GDP in Brazil, the more sophisticated ones, they all say that low commodities prices will inevitably lead to slower NGDP and that should be accounted for. I still don’t have an opinion on the issue, on one side, strong commodities sector account for a small portion of employment, and sometimes are no even controlled by local companies, on the other hand, impact on current account can be very important (just look at the number, for Brasil, between 2003 and 2012, half of the positive reversal in current account can be attributed to iron ore exports). I tend to agree that keeping NGDP constant, no matter what, is more important, but maybe level targeting should no be used when there is a supply shock that reduces commodities prices very signifcantly …

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