Posts tagged 'New Economy'

Greenspan’s dilemma becomes Yellen’s dilemma

Last week we noted the reemergence of Greenspan’s dilemma. Soon no doubt becoming Janet Yellen’s, too.

Very loosely, this is focused on what to do when all conventional economic metrics suggest that it might be time to raise rates, but inflation remains stubbornly grounded regardless.

Kit Juckes at Societe Generale picks up on the theme this Friday:

Once upon a time, we had a whole array of rules to help think about monetary policy -the Phillips curve, NAIRU, the Taylor Rule, even MV=PY (an identity not a rule) and Goodhart’s Law (that anything a central bank targets will mis-behave like a moody teenager). But increasingly, central bankers are throwing away their playbook. In the UK and US, unemployment rate triggers chosen to frame forward policy guidance are set to be revised because they will be reached before the central banks are ready to raise rates. Even at the ECB, there is acknowledgement that the link between economic activity and inflation has ‘become more tenuous in recent years’.

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Greenspan’s dilemma revived

Deficit continues to be a dirty word in the US (despite *those* findings about the holier-than-thou Clinton surpluses not being all that great), whilst the idea that the US is an unsustainable deficit spender increasingly propagates in mainstream circles.

But, as Ethan Harris at Bank of America Merrill Lynch shows on Monday, nothing could be further from the truth. In reality the US deficit is contracting at a relatively speedy rate: Read more