It’s been a long slog. Really. I started Fed-watching back in 2009 and since then I’ve never seen TIPS forecasting on target inflation until just a week ago. It’s just a matter of a some tenths of a percent, more than a few but less than several, but suddenly it seems like a whole different world than the one that included the hard core IT horse I’ve been so diligently whipping here on my blog that I started just for that purpose back in 2011 after my patience wore thin waiting for the Great Recession to be over.
It’s as if the entire purpose for this blog has suddenly vanished overnight. I’ve said in the past that it didn’t matter to me at which alter the Fedsters chose to worship as long as they could deliver on their promises and stop doing more harm than good as a matter of practice. It may too be early to tell whether all of this is will stick or is just a happy accident, and I really am cautious about getting ahead of myself. But I feel relieved on the one hand because the profound sense of righteous indignation that fueled most of the content here may no longer justified, and I really hated to have to be so brutally honest, at times with satirical sarcasm heaped on top, with people I otherwise may have really liked.
Even though what I really wanted is now here, there is still another matter to discuss because it really matters what happens next or we can count on a repeat of the late oughties of the Fed exacerbating reallocation and real shocks.
If it is ever to be done, the conditions of now present a window of opportunity to start looking at NGDPLT implicitly. Get that NGDP futures market up and running. Pick a target, say 5%, and stay the course regardless of what inflation does between now and the time the target rate is reached. There’s still room to make up for missing on the inflation target. We know a real shock has happened somewhere with the recent market volatility that represents capital allocation changes that filter down and affect real people on the ground. It causes inflation to rise and probably the unemployment rate to rise slightly as well – temporarily as it works itself out.
And the last thing we would want to see are these effects interpreted by the monetary authority as a monetary problem and therefore conclude that it is “forced” to do something about the inflation because this would only exacerbate the pain related to whatever the real shock may have been in double-whammy fashion. So I would seriously beg the Fed to reconsider if the prevailing consensus is that inflation is rising and that rise needs to be snuffed out posthaste.
Just cool your jets and keep NGDP growing at 5%, and all will be well.