Inflation Conflation

The FT this morning shared a quote from analysts that represents a general conflation that has occurred since 2008—that interest rates that are low by historical standards must therefore automatically be expansionary. Instead, the current equilibrium rate is likely below zero.  If the Fed wants to prove that it’s truly data-driven, it should cut its target rate at least back to 0-25 basis points at its meeting this week.  It almost certainly won’t though, keen on avoiding the perverse signal sent by the Bank of Japan sending its deposit rate slightly negative and keen on avoiding writing a “Yellen put” in response to the equity market turmoil as of late.

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