US Inflation

Options prices imply record-high confidence in the inflation outlook and little fear of interest rate risk. No wonder stock markets are melting up.

A morally odious theory is empirically unsupportable and increasingly questioned by a younger generation of central bankers. Expect politicians to make more noise about the Fed’s controversial choices after Yellen is gone.

Conventional rate cuts next time won’t be nearly enough.

An educational game suggests violent rate hikes are better than gradual tightening cycles.

Turns out changes in import prices don’t seem to affect domestic prices.

Elsewhere on Friday…

An attempt to counter the Fed’s loss aversion.

Take out the one-offs and disinflation is still happening.

Unpacking the monetary policy views of a potential nominee to the Federal Reserve Board.

New drivers, same trade?

Missing its target…again.

Central bankers think steady price increases are a good thing. After all, inflation makes it easier for employers to cut real labour costs and helps monetary policy boost the economy without having to lower (nominal) interest rates below zero. Whether or not you agree, we thought it would be interesting to look at which products explain the rise of American consumer prices since 1990. As it turns out, just as the bulk of the growth in employment can be attributed to a few sectors where productivity is either low or unmeasurable, a whopping 88 per cent of the total rise in the price level boils down to four sectors of the US economy:

This is a guest post from Richard Koo, chief economist of the Nomura Research Institute and, amongst many other things, author of “The Holy Grail of Macroeconomics, Lessons from Japan’s Great Recession”, which lays out his balance sheet recession thesis in detail. The post is an updated extract from his most recent note for Nomura and reproduced here, with his permission, for your arguing pleasure… The US, the UK, Japan, and Europe all implemented quantitative easing (QE) policies, but the understanding of how those policies work apparently differs greatly from country to country, leading to very different outcomes. With the US economy doing better than the rest, there has been some debate in Europe as to why that is the case.

This post is from Gerard MacDonell, an economist at Point72 Asset Management, formerly SAC, from 2004 through 2015… _____ With the risk of recession and a return to the zero bound now prominent, there is renewed discussion of the Fed and Treasury coordinating to deliver a helicopter dropof money. This would not work in the US because the inflationary implications of it would be too dire and because the Fed would predictably renege on its side of the bargain. Here’s why, as I see it.