FX MACROECONOMICS
inflation firmed, the Fed was feeling more confident about removing some accommodation. By June, opinion frayed. The decline in inflation became more concerning for more Fed officials.
Many have offered to resolve Y el le n ’ s mystery.
They
cite structural factors, like global ization, demographics, and technolog ica l d is r u pt io n s . The arguments are fine and good but
are
beside the point.
These
s t r uct u r a l arguments do not explain the recent decline: why
the July core
PCE deflator stood near 1.8% last
and only 1.4% this past July. It is not
very satisfying to receive a long- term structural explanation for a short-term phenomenon.
Some economists have taken a look at the basket of goods and services and found that air travel, apparel, and used car prices have dragged the core measure lower. Te appropriate level of analysis is
14 FX TRADER MAGAZINE October - December 2017
speech last week. He focused on the factors that seemed to have broken down the old relationship between economic activity
and prices. Borio
offers a clear and compelling explanation: Globalization. The establishment of global value chains and the entry of low-cost producers and their cheap labor into the market
Yellen sounds confident that over time, wages will rise, and businesses can be expected to pass on higher costs to consumers
not the integration of China and the former Soviet Union into the market economy.
It is not about
the Baby Boomers retiring, or unfolding of Moore’s Law.
The chief economist at the BIS, Borio offered his take in a
The Financial Times’ Davies see Bario at odds with Yellen. Davies makes it sound that protocol prevented Bario
Yellen directly for not accepting the
suggest
a rg u me n t s . But
from criticizing structural we
Bario
and Yellen are
at different things. is
interest rates and
months.
Moreover, the a g r e em en t between Yellen and Bario is of
greater significance. The policy prescription is the same, though they arrive at it somewhat differently.
Yellen argues
that the transitory nature of inflation depressants suggest the Fed should look past them and maintain its course of gradually removing accommodation.
Ba rio argues tha t the
looking Bario
at the long- term
looking decline
inflation.
Yellen is looking at the last
several
economy is at the center of his explanation.
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70
