Saturday, July 15, 2017

Where are the supply shortages?

Federal Reserve plans for gradual interest-rate increases hinge on inflation rising to its 2 percent target, but it’s not showing up and they don’t know why. That’s undermining Chair Janet Yellen’s case for further policy tightening.Over two days of congressional testimony this week, Yellen stuck to the Fed’s outlook for gradually rising inflation that would support additional hikes in their policy rate. That was before Friday’s consumer price index report that showed continued weak pricing power in June across a range of goods and services for the fourth consecutive month.
Housing and medicine. Other consumables are deflating in price.  General inflation is an illusion with no real counterpoint in the economy. Instead of general inflation we get business cycles as the distribution of consumer prices has to renormalize after a long period of distortion.

In other words, if home prices rise continually, without stop, then we must be taking out home loans to feed ourselves. But that has a limit.

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