Rational Irrational Exuberance? | Forex Factory

  • Rational Irrational Exuberance?

    From project-syndicate.org

    The timing was exquisitely ironic: equity markets peaked – and a week later began crashing – just as pundits left this year’s World Economic Forum meeting in Davos, where they concluded that the global economy was on a steady upswing. In the weeks since, experts have divided into two camps. Some, including new US Federal Reserve Board chairman Jerome Powell, believe that economic fundamentals are strong, and that what stock markets experienced in early February was only a temporary hiccup. In this view, there is nothing keeping major central banks from carrying out “beautiful” (that is, gradual and ... (full story)

Comment Options
AnniLi
Feb 28, 2018 5:02pm
Permalink
8 to 9 years on we are still a long distance from normal either in US or world terms so this is what amazes me about such comments - that there is a foggy debate about why there is no inflation yet there is somewhat stronger growth and falling output gap. In simple terms I have tried so many times to explain the reality that its like groundhog day when when these comments re-appear.

After the global financial crisis the money markets were completely broken and while much has been done to pretend they are fixed, nobody really knows. The event itself damaged business confidence around the world for sure but this was concealed by quite a few positive developments - China et al, restructuring in Europe (patchy), oil technology, information technology, easy labor markets at the global level, and more free world trade. The story is an international story but on balance too weak to drive a 'normal' upswing in the US economy - i.e. no effective output gap has been seen yet, it could be close it could be far away. With all our technology and measuring all we can see from the crow's nest is a flat calm out there.

If the US is very close to fresh inflationary pressures emerging then we ought to be looking at another 300 to 400 basis points and not 100 to suggest a path back to 'normal'. Under current world circumstances that would drive the USD into outer space. Yellen knew about this but Powell may be still too wet behind the ears.
Reply

  • Related Stories

There are no posts to display for these settings.
  • Story Stats