|
|
|
|
Among the many rate-hike-related themes appearing in the financial media
this week is what some are calling the Federal Reserve’s “Inflation
Conundrum”, an homage to a similar stumping of the central bank more than a
decade ago when short-term rates were raised but long-term rates didn’t
budge, that is, until the yield curve inverted and, voila!, financial crisis
and recession ensued when another asset bubble burst.
The WSJ weighs in with The
Mystery of Missing Inflation Weighs on Fed Rate Move ($)
today.
Fed officials face a troubling question: Jobs are on track, but inflation
isn’t behaving as predicted and they don’t know why. Unemployment
has fallen to 5%, close to estimates of full employment, but inflation is
stuck at less than 1%, well below the Fed’s 2% target.
Central bank officials predict inflation will approach their target in
2016. The trouble is they have made the same prediction for the past four
years. If the Fed is again fooled, it may find it raised rates too soon,
risking recession.
Fed officials also don’t know why they target
a 2 percent inflation rate rather than say, 1 percent or 3 percent or
some other number, a question that is perhaps worth answering first, before
they attempt any further investigation into why they’re not meeting this
target.
| |
Tim Iacono is the founder of Iacono Research, a subscription service providing market commentary and investment advisory services specializing in commodity based investing.
Similar articles you might enjoy :