From ‘Definitely Transitory’ to ‘Imperfect Understanding’ In One Press Conference

This is a syndicated repost courtesy of Alhambra Investments. To view original, click here. Reposted with permission.
When Janet Yellen spoke at her regular press conference following the FOMC decision in September 2017 to begin reducing the Fed’s balance sheet, the Chairman was forced to acknowledge that while the unemployment rate was well below what the central bank’s models view as inflationary it hadn’t yet shown up in the PCE Deflator. Of course, this was nothing new since policymakers had been expecting accelerating inflation since 2014. In the interim, they have tried very hard to stretch the meaning of the word ‘transitory’ into utter meaninglessness; as in supposedly non-economic factors are to blame for this consumer price disparity, but once they naturally dissipate all will be as predicted according to their mandate.
That is, actually, exactly what Ms. Yellen said in September, unusually coloring her assessment some details as to those ‘transitory’ issues:
For quite some time, inflation has been running below the Committee’s 2 percent longer-run objective. However, we believe this year’s shortfall in inflation primarily reflects developments that are largely unrelated to broader economic conditions. For example, one-off reductions earlier this year in certain categories of prices, such as wireless telephone services, are currently holding down inflation, but these effects should be transitory. Such developments are not uncommon and, as long as inflation expectations remain reasonably well anchored, are not of great concern from a policy perspective because their effects fade away.
Appealing to Verizon’s reluctant embrace of unlimited data plans for cellphone service was more than a little desperate on her part. Even if that was the primary reason for the PCE Deflator’s continued miss, it still didn’t and doesn’t necessarily mean what telecoms were up to was some non-economic trivia.

This post was published at Wall Street Examiner on December 26, 2017.