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A Framework That Provides Clarity

During periods of “low visibility,” confusion reigns: for every indication of one trend, there seems to be a countertrend. The key is to glean from the collective wisdom of reliable leading indicators a clear signal that the economy is headed for a turn.

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Oct 08 2015

Blind Faith Puts Fed Further Behind the Curve

While there is finally some recognition that the Fed missed its best opportunity to start hiking rates, it was at the beginning of this year that we asked, “If not now, when?” Indeed, the start of a rate hike cycle typically implies that the economy is on a strong footing, yet growth has been slowing all year, and inflation remains stuck well below the Fed’s target. Meanwhile, if this slowdown continues, it would be a particularly inopportune time to begin raising rates.

The Fed is clearly compelled to make a case for hiking rates and, despite the broken relationship between the jobless rate and inflation, is institutionally wedded to the Phillips curve to justify rate hikes. Moreover, the Fed has blamed the weakness in inflation on transitory factors, even as inflation expectations suggest that lowflation will linger.

With the stakes rising, ECRI’s latest cyclical research delves into the durability of lowflation, and whether there is a case for the Fed to begin a rate hike cycle anytime soon.

Related News & Events

Three Point Summary of Today's Discussion on Bloomberg

Bloomberg October 5, 2015

Discussing the U.S. slowdown, World export price deflation and the Fed's Phillips curve approach. More

 

The White Queen’s Rule

ECRI October 5, 2015

Seven years after the financial crisis - no Fed rate hike seems surreal. More

 

Second Half Capitulation

ECRI September 30, 2015

Some are starting to catch on to the slowdown that ECRI’s leading indexes flagged at the start of the year. More