Last week the US Fed had its annual Jackson Hole meeting of the intellectuals of monetary policy. The news focused on Chair Powell’s comments that the Fed will stick to its policy, continue to raise and then maintain higher interest rates until inflation is truly vanquished. That apparently popped the delusional bubble around stock market investors who hoped that the Fed would ease up. And now, all eyes are watching our weekly US data again to see what happens next.
Thanks for the comment. Yes, part of the argument in favor of developing the Fiscal Theory of the Price Level is the view that monetarists view credit created by the commercial banking system as inflationary and yet the modern empirical evidence from the 2008 crisis suggests this isn’t the case…. I listened to Mehrling’s interviews on Bloomberg Odd Lots and read material from his faculty site. I like his thinking and plan to dive into it a bit more. He’s much more on the technical, banking practitioner side. … the non-pity for us macroeconomists is that there’s always more to learn and that keeps things interesting! Thanks for reading!!!
Pity the macroeconomist...The main problem(s) with the Cochrane view of inflation is that his theory totally ignores credit creation by the commercial banking system, including the Eurodollar system, which is a huge driver of 'money' creation. A related issue is that for the US, one needs to focus on the impact of the global dollar system, rather than just on US-centric variables (like US broad money). At the end of the day, the Fed is effectively the world's central bank (and lender of last resort) - see Perry Mehrling's work.
Hi Chris, I have a feeling that this inflation is heavily affected by the scarcity of products and materials in the supply chain collapsed by the Covid-19 and the Ukrainian war. If governments don't provide cheap money, the recovery of the supply chains would take much longer time.
What are the measures of scarcity that could be put on a graph?