Skip to main content

How the Hell Can the Fed Find Neutral When It Doesn't Know What Inflation Is?

The Fed wants to set interest rates at a neutral spot defined as the rate that is neither expansionary nor contractionary. The Fed is certain to fail.
  • Author:
  • Publish date:
Case-Shiller Home Price Index National and Top 10  2022-03

Debate Over Neutral

Clueless About Inflation

Chicago Fed president Charlie Evans says that "at best 2.5% is neutral" but neutral isn't good enough for him. 

Evans wants a restrictive rate of 3.75% to 4.0%.Evans tosses around some core PCE numbers as well.  

The Fed and nearly all economic analysts are clueless about inflation. The entire group looks at the CPI, PCE, and other distorted measures as "inflation". 

The results speak loudly. The Fed blew a DotCom bubble, a housing bubble, and an everything bubble each time hoping to make up for an alleged lack of inflation. 

 Case Shiller Home Prices 

I have not updated the lead chart for two months but it shows the problem clearly.

All the economic jackasses are so focused on "consumer inflation" they totally ignore assets bubbles especially housing. 

Asset bubbles in general are difficult to measure, but home prices are easy. 

CS National Top 10 Metro CPI OER 2022-04A

The Fed and most economists ignore home prices calling them a capital good. 

OK, so what? Is the goal to measure inflation or is it to measure "consumer inflation"?

In the prelude to the DotCom bubble, the fed ignored asset prices. It's difficult to put an inflation number on speculation, but it has been rampant for over two decades. 

Housing is different. It can easily be measured. But for two consecutive bubbles the Fed at best did not pay attention. 

The Right Way to Neutral

Neutral isn't meaningless, and yes it constantly moves. That's why the Fed is constantly chasing its tail.

Nick Timiraos, chief economics correspondent, for the Wall Street Journal asked Evans "What's the right way to estimate a nominal neutral rate in an environment of high inflation?"

Scroll to Continue


He asked the wrong person and more importantly the wrong question.

The right question is "How do we get to neutral?"

Since neutral is constantly moving, only the free market has a chance of finding it. 

Instead, we have a bunch of economic group-think wizards who two years ago were begging for more inflation and now that they have it are equally clueless regarding what to do about it.

Ivory Tower Jackasses

The Fed is a proven failure that does not understand bubbles, neutral, or inflation. 

None of the Fed presidents has had a real job ever. They live in their ivory towers, set policy, and blow bubbles.

Their curious definition of stable is a perpetual two percent rise in inflation that they do not even know how to measure.

SF Fed President Mary Daly: "I Don't Feel the Pain of Inflation Anymore."

Yesterday, San Francisco Fed President Mary Daly set the tone for ivory tower arrogance. 

When asked about inflation, Daly responded "I don't feel the pain of inflation anymore. I see prices rising but I have enough... I sometimes balk at the price of things, but I don't find myself in a space where I have to make tradeoffs because I have enough, and many Americans have enough."

She accidentally stated how all the Fed presidents likely feel. 

When you live in a ivory tower and make $427,000 a year, no, you don't feel the pain of inflation. Unfortunately, most people do. 

For discussion, please see SF Fed President Mary Daly: "I Don't Feel the Pain of Inflation Anymore."

This post originated at MishTalk.Com.

Thanks for Tuning In!

Please Subscribe to MishTalk Email Alerts.

Subscribers get an email alert of each post as they happen. Read the ones you like and you can unsubscribe at any time.

If you have subscribed and do not get email alerts, please check your spam folder.