August 26, 2018

EXCEPT THAT THE GAPS ARE 40 YEARS AFTER THE DEFLATIONARY EPOCH BEGAN:

Jackson Hole admission points to gaps in understanding economy 10 years after crisis began (Sam Fleming, 8/26/18, Financial Times)

Mr Powell and his colleagues at the gathering on Friday and Saturday made it clear that the Fed will err firmly on the side of caution as they slowly edge rates higher, while watching for signs of overheating across a range of indicators.

But Mr Powell's mistrust of central banking lodestars, such as the natural rate of unemployment or neutral rate of interest, speaks to deeper uncertainties running through the profession as officials struggle with basic gaps in their understanding of how the economy works 10 years from the start of the credit crisis.

Among the most stubborn questions is why wages and inflation have failed to ignite despite unemployment falling ever further below what bankers in the US and elsewhere thought was its natural rate.

Alan Greenspan made the same mistake twice and Ben Bernanke once, tightening into the teeth of deflation until they triggered economic slowdowns.   


Posted by at August 26, 2018 10:56 AM

  

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