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Must-Read: Pedro Nicolaci da Costa: Fed may pause rate hikes if inflation weakness persists

Summary:
Must-Read: Every year since 2007 the Fed has been too optimistic and forecast that its interest rates will be higher than has turned out to be the case. Every single year. 2-11 = 1/2048: Pedro Nicolaci da Costa: Fed may pause rate hikes if inflation weakness persists: “The Federal Reserve is embarking on an annual summer ritual: Downgrading its overly optimistic forecasts for economic growth… http://www.businessinsider.com/fed-may-pause-rate-hikes-if-inflation-weakness-persists-2017-7 …Janet Yellen’s testimony to Congress this week… acknowledging that a recent decline in inflation further below the central bank’s 2% target may not, in fact, be as fleeting as policymakers had hoped…. The latest figures are clearly heading in the wrong direction. Consumer prices held flat in June

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Must-Read: Every year since 2007 the Fed has been too optimistic and forecast that its interest rates will be higher than has turned out to be the case. Every single year. 2-11 = 1/2048:

Pedro Nicolaci da Costa: Fed may pause rate hikes if inflation weakness persists: “The Federal Reserve is embarking on an annual summer ritual: Downgrading its overly optimistic forecasts for economic growth… http://www.businessinsider.com/fed-may-pause-rate-hikes-if-inflation-weakness-persists-2017-7

…Janet Yellen’s testimony to Congress this week… acknowledging that a recent decline in inflation further below the central bank’s 2% target may not, in fact, be as fleeting as policymakers had hoped…. The latest figures are clearly heading in the wrong direction. Consumer prices held flat in June despite expectations for a 0.1% increase and the annual rate, which the Fed watches closely, registered just 1.6%. The Fed’s preferred measure of inflation, the personal consumption expenditures index, has also been slipping…. Not one but two regional Fed banks have just downgraded their growth estimates….

The Fed has frequently been overly optimistic about its predictions for rate hikes in the post-recession era. This rather stunning chart from Deutsche Bank’s Torsten Slok is rather instructive:

Fed may pause rate hikes if inflation weakness persists Business Insider
Bradford DeLong
J. Bradford DeLong is Professor of Economics at the University of California at Berkeley and a research associate at the National Bureau of Economic Research. He was Deputy Assistant US Treasury Secretary during the Clinton Administration, where he was heavily involved in budget and trade negotiations. His role in designing the bailout of Mexico during the 1994 peso crisis placed him at the forefront of Latin America’s transformation into a region of open economies, and cemented his stature as a leading voice in economic-policy debates.

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