Live from Jackson Hole 2015 Weblogging: I have finally figured out what I feel like here at the Jackson Lake Lodge: I feel like Jacob Marley's Ghost.
It was 23 years ago that Larry Summers and I came here to say, among other things, that reducing the inflation target below 4% per year was extremely risky and unwise because it greatly raised the chances of running into zero lower bound in a recession.
Jeebus! We were right. By the Sacred and Holy Name of the One Who Is! We were right.
And now the Federal Reserve is stuck.
Outside on the patio as the first rays of the sun hit the peak of Mount Moran St. Louis Federal Reserve President James Bullard was saying that Financial markets are wrong and the fact that the market 10-year inflation breakeven is now 1.5% is something the Federal Reserve is ignoring. Because the market does not know what it is doing. James Bullard. Is there any other circumstance under which James Bullard would say that the market does not know what it is doing, other than when the market is telling him that his monetary policy is inappropriately tight?
Not a 4%/year target as an average. Not a 2%/year target as an average. Not even a 2%/year ceiling. The market is saying that they are not even going to make 2%/year as a ceiling over the next decade. And the response is fingers-in-your-ears and: "We can't hear you!"