IT'S A DEFLATIONARY EPOCH:

[S]he is taking the Federal Reserve yet again into uncharted territory, just as her predecessor Ben Bernanke did.

Yellen's problem, basically, is this: Unemployment is statistically very low at about 5 percent, more than low enough to justify an increase in rates. In the past, as the labor market tightened (i.e. unemployment went down), wages and inflation began to rise. Today, that just isn't happening. The Fed and its staff, like any good economists, rely on past patterns as a guide to future outcomes. And now, those patterns are no longer working: Wages are no longer following productivity upwards, and thus even many nominally employed people still feel poorer. At the same time, inflation appears all but nonexistent, despite many warnings to the contrary. So how can you justify raising rates?

Thus Yellen's challenge--and, in truth, our collective challenge--is that the standards that are supposed to guide monetary policy appear to have collapsed.
Despite a steady job surge that makes a rate increase likely soon (the Labor Department reported Friday that the economy added another 271,000 jobs in October), what Yellen is offering is a deeper truth. It is looking increasingly unlikely that inflation, wages and labor markets are in a cyclical funk in the United States and increasingly likely that some fundamental structural shift has occurred. That shift, of lower cost goods, less velocity of money, lower wages, gig employment, the disruptions of technology, globalized capital markets, evaporating inflation, invalidates many of the bedrock assumptions of central banks. Yellen and many others are working furiously to understand and not to make missteps born of rigid and false theories.

The prospect of an interest rate increase in the U.K. has gotten pushed back further, possibly even to 2017, to the likely relief of homeowners and grief of savers.

Faced with weak inflation and growing uncertainties in the global economy, the Bank of England's policy group voted 8-1 on Thursday to keep interest rate at a record low of 0.5 percent and signaled it could take longer than expected to start raising rates.

Tweet   @brothersjudd