That goes double for our vassals (well put, that) in Europe, who have little to gain and much to lose (and who are in fact doing nothing *but* lose) as a result of America's imperial adventures.
Is the lowest vol quintile effectively the same as the 80% trimmed-mean? That is, the weighted average of one-month inflation rates of components whose expenditure weights fall below the 60th percentile and above the 40th percentile of price changes?
This seems like much ado over a simple equation: Effective Funds Rate minus Inflation. We have been at historically negative levels; the Fed raising interest rates only brings this equation to the prior historic negative end of the range.
But sadly, in reality I am more and more firmly of the view that the Fed is doing what Zoltan Poszar said they would: in the absence of the Fed's fundamental inability to address ESG/climate change/government policy induced underinvestment in fossil fuel, as well as commodities in general, coupled with even more self-harming sanctions on Russia, the resulting actions are intended to destroy demand by inducing a massive recession.
Effective Funds Rate minus Inflation equals what? It does not equal real rate except in a back of the envelope sense. At any rate, this Econ 101 idea that what really matters is the real rate of interest is only roughly right in the sense that over a long enough time horizon, the real rate captures the relative tightness of monetary policy. But it doesn’t work at all at higher frequencies, where we have much better proxies of financial conditions. Ultimately, this is bc markets anticipate monetary policy innovations and “price in” tightening or easing that’s anticipated. The upshot is that the 2 year yield, not the policy rate, contains the stronger signal of monetary tightness. See my https://policytensor.substack.com/p/a-tight-money-index-for-the-united.
You are correct that EFF minus inflation is not a granular measure - yet it is unclear why granularity is relevant in this discussion.
Nor is your attempt to deflect into "currect policy" actions very useful; in particular, why is EFF-inflation irrelevant when this measure is literally at historically negative levels? Is this not itself a clear demonstration that policy to this point has clearly resulted in extreme unanticipated consequences and/or enormous policy errors?
As such, you missed the entire point: whatever "higher frequency proxies" you desire to use - any and all of them clearly have failed in literally every historic sense when generational boundaries of liquidity are breached - which is the only way in which said EFF-inflation reaches -6% - which it did earlier this year.
Even right now, after a historic series of Fed fund increases, the EFF-inflation number is very much at the edge of what used to be historic levels prior to 2022.
So whatever "signals" you choose to focus on, or "market expectations", etc - the fact remains that a historically unprecedented situation occurred, and even after a historic series of responses, that the historic situation remains.
EFF-CPI would suggest that monetary policy has been accommodative all year. If that is really the case, then why have risk assets lost so much money? You’re looking at noise; not signal.
Risk assets have lost so much money because the ginormous post 2008 liquidity bubble is finally deflating.
As for your assertion that this is noise: risible given literally generationally historic EFF-CPI negative numbers. In what universe does noise result in historic levels after 50 years? (I say 50 because it is post-closing of the gold window which matters.)
Now if you were to argue that ZIRP caused historic distortions which changed the fundamental variability in the financial system - i.e. amplified all signals including noise - that would be a better argument. But it would still point to mainstream economic modes of analysis being garbage - because those modes of analysis are what led to ZIRP to start with.
In-demand employeea tend to be uppity employees.
Desperate employees are docile employees.
That goes double for our vassals (well put, that) in Europe, who have little to gain and much to lose (and who are in fact doing nothing *but* lose) as a result of America's imperial adventures.
Is the lowest vol quintile effectively the same as the 80% trimmed-mean? That is, the weighted average of one-month inflation rates of components whose expenditure weights fall below the 60th percentile and above the 40th percentile of price changes?
This seems like much ado over a simple equation: Effective Funds Rate minus Inflation. We have been at historically negative levels; the Fed raising interest rates only brings this equation to the prior historic negative end of the range.
But sadly, in reality I am more and more firmly of the view that the Fed is doing what Zoltan Poszar said they would: in the absence of the Fed's fundamental inability to address ESG/climate change/government policy induced underinvestment in fossil fuel, as well as commodities in general, coupled with even more self-harming sanctions on Russia, the resulting actions are intended to destroy demand by inducing a massive recession.
Effective Funds Rate minus Inflation equals what? It does not equal real rate except in a back of the envelope sense. At any rate, this Econ 101 idea that what really matters is the real rate of interest is only roughly right in the sense that over a long enough time horizon, the real rate captures the relative tightness of monetary policy. But it doesn’t work at all at higher frequencies, where we have much better proxies of financial conditions. Ultimately, this is bc markets anticipate monetary policy innovations and “price in” tightening or easing that’s anticipated. The upshot is that the 2 year yield, not the policy rate, contains the stronger signal of monetary tightness. See my https://policytensor.substack.com/p/a-tight-money-index-for-the-united.
You are correct that EFF minus inflation is not a granular measure - yet it is unclear why granularity is relevant in this discussion.
Nor is your attempt to deflect into "currect policy" actions very useful; in particular, why is EFF-inflation irrelevant when this measure is literally at historically negative levels? Is this not itself a clear demonstration that policy to this point has clearly resulted in extreme unanticipated consequences and/or enormous policy errors?
As such, you missed the entire point: whatever "higher frequency proxies" you desire to use - any and all of them clearly have failed in literally every historic sense when generational boundaries of liquidity are breached - which is the only way in which said EFF-inflation reaches -6% - which it did earlier this year.
Even right now, after a historic series of Fed fund increases, the EFF-inflation number is very much at the edge of what used to be historic levels prior to 2022.
So whatever "signals" you choose to focus on, or "market expectations", etc - the fact remains that a historically unprecedented situation occurred, and even after a historic series of responses, that the historic situation remains.
EFF-CPI would suggest that monetary policy has been accommodative all year. If that is really the case, then why have risk assets lost so much money? You’re looking at noise; not signal.
Risk assets have lost so much money because the ginormous post 2008 liquidity bubble is finally deflating.
As for your assertion that this is noise: risible given literally generationally historic EFF-CPI negative numbers. In what universe does noise result in historic levels after 50 years? (I say 50 because it is post-closing of the gold window which matters.)
Now if you were to argue that ZIRP caused historic distortions which changed the fundamental variability in the financial system - i.e. amplified all signals including noise - that would be a better argument. But it would still point to mainstream economic modes of analysis being garbage - because those modes of analysis are what led to ZIRP to start with.