People like to blame oil prices for causing inflation even though it is the other way around, with money supply growth causing inflation. This graph shows the relation between nominal oil prices, real oil prices and the normalized US CPI inflation rate. Very close correlation between oil prices and inflation. Two main exceptions: the increasedContinue reading “Real Oil Prices and Inflation”
Author Archives: rx789
AS-AD with Relative Prices
Why not use the real AS-AD model that is derived from Ramsey (1928)? Keynes would be proud. Here is a SUERF Policy Brief draft to be published in September.
Granger predictability of real oil prices by US money and inflation in Markov-switching regimes” has been published online in Eurasian Economic Review, Open Acces
rdcu.be/d7wKW Present value theory linking oil prices to money growth and inflation rates: The model presented here is a theoretical asset pricing model for oil prices from Gillman and Nakov (2009). It shows that the capital in the oil sector demands that the USD oil price follow changes in the discount factor which is theContinue reading “Granger predictability of real oil prices by US money and inflation in Markov-switching regimes” has been published online in Eurasian Economic Review, Open Acces”
Greg Ip is Right: “Why the Fed Should Cut Rates Now – Not Wait Until September”
Williams is Wrong Again
According to the WSJ today (Nick Timiraos, July 17, 2024), John Williams as President of the New York Fed and Vice Chair of the Federal Open Market Committee (FOMC) that decides US monetary policy, stated that the labor market’s current conditions (a slow, steady rise in the unemployment rate) and recent inflation rates are “gettingContinue reading “Williams is Wrong Again”
The Real Estate Run Has Begun, as the Fed sits in Nowhere land making Nowhere plans for Nobody.
As the Federal Reserve System sits on an Interest rate on Reserve Balances (IORB) of 5.4% that they set by dictate each time they meet for “monetary policy” decisions, the 3-month Treasury bill rate continues to follow it nearly identically. This is true even though the IORB is the rate the Fed began paying inContinue reading “The Real Estate Run Has Begun, as the Fed sits in Nowhere land making Nowhere plans for Nobody.”
FED: Lower Your Dictated Interest Rate Now; Real Rates have been above 2% for 7 months.
Last time I wrote how the last 6 months of CPI inflation at rates in the 3% range made shot the real interest rate up to over 2% for the entire period. Why? Because after almost a quarter of a century of the Fed pushing the real interest rate below zero (with 2006-2007, and aContinue reading “FED: Lower Your Dictated Interest Rate Now; Real Rates have been above 2% for 7 months.”
A Plea to the Fed: Inflation, Interest Rates & Fed’s Combined Monetary & Macroprudential Policy
For six months, half a year, the US CPI inflation rate has remained in the 3% range, averaging 3.4% in that time. That is low inflation. The inflation rate almost never exactly equals the 2% Fed target. Rather the inflation rate has bounced around 2%, and a 3% number for 6 months leaves little doubtContinue reading “A Plea to the Fed: Inflation, Interest Rates & Fed’s Combined Monetary & Macroprudential Policy”
Stranger than Fiction: Neutral Rate, Natural Rate Nonsense Nomenclature
The Federal Reserve must start to lower the nominal interest rate since inflation is now at 3% and the real market rate of interest is sufficiently positive after two decades of negative real interest rates through “persistent liquidity” injections by the Fed that have led to over $4 trillion in reserves sitting at the Fed,Continue reading “Stranger than Fiction: Neutral Rate, Natural Rate Nonsense Nomenclature”
The Fed’s Last Unnecessary Increase in Interest Rates: Raising the Real Rate towards 3%
The Federal Reserve increase in interest rates to the 5.25-5.5% level in July 2023 was unnecessary and unwise. Inflation is now falling and will continue to fall. Having come in at 3% in June, the real rate of interest is now more than 2% and rising. This is after having been negative for many years.Continue reading “The Fed’s Last Unnecessary Increase in Interest Rates: Raising the Real Rate towards 3%”
Max Gillman 