Submitted by Taps Coogan on the 26th of February 2019 to The Sounding Line.
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Bleakley Advisory Group CIO Peter Boockvar recently spoke with CNBC’s Rick Santelli about the appropriateness of the Fed’s 2% inflation target, noting that the Fed should think less in terms of inflation and more in terms of the cost of living for Americans.
“If the Fed would replace the word ‘inflation’ with ‘cost of living,’ I think the discussion around their policy would be much different. So now they are on this analysis that if inflation runs below 2% for a period of time, then they need to have a period of time where it trends above to sort of average out. So above would be, let’s just call it 3%. But take out the word inflation and say ‘we need a 3% increase in the cost of living’ and somehow that would be the right way of calibrating policy. Meanwhile, that would reduce real wages. It would send this consumer dependent economy… into recession as consumers retrench on those types of cost increases. And it would lead to higher interest rates which would damage a credit dependent economy… The Fed needs to throw out the word inflation and replace it with ‘cost of living’ and re-analyze this discussion.”
“…The great thing with the Bank of Japan is we have this long period of time with evidence of how zero interest rate policy and many years of QE work and instead of learning from those lessons, the European Central Bank, the Bank of England, and our Fed seem to be intent on repeating all those mistakes… You can assume that when we do go into the next recession, whenever that might be, they’ll cut rates to zero again, they’ll do QE, which is exactly how the Bank of Japan has addressed their issues over the many years that never worked. So take the Bank of Japan as a lesson and do the opposite.”
“…Central banks were never meant to be: ‘when we pull the alarm for recession do everything you can to stop it.’ They’re not about trying to avoid setbacks. They’re there to nudge the economy…”
Indeed. As we discussed here, central banks should be in the business of preparing for recessions, not delaying them.
There is more to the interview, so enjoy it above.
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