Friday, May 12, 2017

Mean reversion

The rate of inflation in this non-shelter core is 0.8 percent over the last year. Perhaps even more importantly, it is falling, not rising. This means that the extremely weak evidence of any acceleration in core inflation was completely due to rising rents. If we pull out housing, the rate of inflation in everything else is declining.So why does the Fed feel it has to raise rates?
Technically, the housing inflation should mean revert. Socially, the rate hike allows young people to save for a home.  But the reality is that rates are rising because Ned is dumping debt at the  short end. 

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