{"id":37079,"date":"2018-08-26T07:51:10","date_gmt":"2018-08-26T12:51:10","guid":{"rendered":"http:\/\/olduvai.ca\/?p=37079"},"modified":"2018-08-26T07:51:10","modified_gmt":"2018-08-26T12:51:10","slug":"fed-staff-delivers-intellectual-ammo-for-hawkish-approach-to-inflation","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=37079","title":{"rendered":"Fed Staff Delivers Intellectual Ammo for Hawkish Approach to Inflation"},"content":{"rendered":"<header>\n<h3 class=\"entry-title\"><a href=\"https:\/\/wolfstreet.com\/2018\/08\/26\/fed-staff-lays-intellectual-foundation-for-hawkish-approach-to-inflation\/\">Fed Staff Delivers Intellectual Ammo for Hawkish Approach to Inflation<\/a><\/h3>\n<\/header>\n<div class=\"entry-content\">\n<p><strong>\u201cBecause monetary policy acts with a lag, waiting for inflation to materialize before reacting is undesirable, particularly when economic conditions are such that outsized deviations of inflation from its target are a plausible outcome.\u201d <\/strong><\/p>\n<p>Let\u2019s break the above quote apart and put it in perspective:<\/p>\n<ul>\n<li>Waiting with rate hikes until inflation materializes is undesirable.<\/li>\n<li>This is particularly true today after years of global QE and zero-interest-rate policy, when \u201coutsized deviations of inflation\u201d \u2013 such as a sudden and hard-to-control surge \u2013 \u201care a plausible outcome.\u201d<\/li>\n<\/ul>\n<p>The quote is the conclusion of the 39-page <a href=\"https:\/\/www.federalreserve.gov\/monetarypolicy\/files\/fomcprojtabl20180613.pdf\" target=\"_blank\" rel=\"noopener\">research paper<\/a> by five economists at the Board of Governors of the Federal Reserve, of which Jerome Powell is chairman. The researchers used <a href=\"https:\/\/en.wikipedia.org\/wiki\/Stochastic_simulation\" target=\"_blank\" rel=\"noopener\">stochastic simulations<\/a> to outline how two uncertainties \u2013 inflation dynamics and something the Fed calls the natural rate of unemployment (we\u2019ll get to them in a moment) \u2013 \u201caffect the choice of strategies for monetary policy.\u201d<\/p>\n<p>The paper was released with careful timing ahead of Powell\u2019s speech at the Jackson Hole symposium, where he defended the Fed\u2019s \u201cgradual\u201d approach to rate hikes against attacks from both sides \u2013 those saying they weren\u2019t fast enough, given what\u2019s happening on the inflation front, and those saying that the only good money is cheap money.<\/p>\n<p>The <a href=\"https:\/\/www.federalreserve.gov\/monetarypolicy\/files\/fomcprojtabl20180613.pdf\">paper<\/a> wasn\u2019t so balanced. It gave fuel to the discussion at the Fed on how fast to raise rates now that inflation has hit the Fed\u2019s target of 2%, based on the Fed\u2019s preferred measure, core PCE, which has been hovering between 1.9% and 2.0% since May.<\/p>\n<p>The crux is the relationship between the unemployment rate (3.9% in July), a level traditionally associated with effects where labor market tightness leads to rising wages which then pushes up prices. This is the classic model, embodied by the Phillips curve.<\/p>\n<p>\u2026click on the above link to read the rest of the article\u2026<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Fed Staff Delivers Intellectual Ammo for Hawkish Approach to Inflation \u201cBecause monetary policy acts with a lag, waiting for inflation to materialize before reacting is undesirable, particularly when economic conditions are such that outsized deviations of inflation from its target are a plausible outcome.\u201d Let\u2019s break the above quote apart and put it in perspective: [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[303,426,431,16888,534,3650,4254,4255],"class_list":["post-37079","post","type-post","status-publish","format-standard","hentry","category-economics","tag-fed","tag-inflation","tag-interest-rates","tag-jerome-powell","tag-monetary-policy","tag-us-federal-reserve","tag-wolf-richter","tag-wolfstreet"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/37079","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=37079"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/37079\/revisions"}],"predecessor-version":[{"id":37080,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/37079\/revisions\/37080"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=37079"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=37079"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=37079"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}