tag:blogger.com,1999:blog-5908830827135060852.post5010141347681983054..comments2024-03-01T02:40:14.946-05:00Comments on Bond Economics: Pre-FOMC RecapBrian Romanchukhttp://www.blogger.com/profile/02699198289421951151noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-5908830827135060852.post-3738477085642951052016-12-13T19:41:06.575-05:002016-12-13T19:41:06.575-05:00(In this comment, I am setting out the conventiona...(In this comment, I am setting out the conventional arguments as to why bond yields are rising. I have theoretical objections to various points, but I am setting the argument out in a manner that you would see elsewhere.) <br /><br />I am not particularly worried about inflation, but hawks would argue that it tends to rise as the labour market tightens. Based on the unemployment rate, a lot of people would argue that we are near the so-called "full employment level" (a phrase that would cause most MMT economists to scream) that is associated with rising inflation.<br /><br />Bond yields are still quite low with respect to what people used to think were "neutral" levels, so many would argue that even with the recent rise, a low inflation environment is still priced in.<br /><br />(Although there is skepticism about using rate hikes to lower inflation amongst MMT and some mainstream economists, that is a minority position.)Brian Romanchukhttps://www.blogger.com/profile/02699198289421951151noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-72124016411508187132016-12-13T17:47:18.683-05:002016-12-13T17:47:18.683-05:00Don't understand the recent bond movement othe...Don't understand the recent bond movement other than misguided anticipation. What happened to inflation as interest rates fell? Nothing. Why would we expect a slow hike in rates to do anything to inflation? The exception is where people borrow large sums to purchase (real estate, especially), but who wants deflation/stall in the housing market? The Fed seems behind the curve, but not in the way that the bond market believes. Take a look at what's happened to credit demand lately: http://moslereconomics.com/2016/12/11/credit-check-17/ Things are slowing without any action by the Fed.<br /><br />At this point I don't think it's even clear that more income will necessarily lead to inflation. What are people going to buy more of for which demand can't be easily satisfied? Employers are (I hope) smart enough to realize that paying more to steal employees from the outfit down the street is self-defeating. I think before one can assume inflation, one needs to think through the transmission mechanism and it's not simple. If it were simple, all those help wanted signs in retail/service near me would be gone and all those positions would be full-time and paying $15/hr.Andrewhttps://www.blogger.com/profile/16117038742077458192noreply@blogger.com