I suspect President Trump has been told that markets don’t like radical changes. If there is one thing that any elected official is afraid of, it’s the internet flooded with reports of grave financial instability. We need only go back a year to find otherwise confident authorities suddenly reassessing their whole outlook.
On the campaign trail, candidate Trump was very harsh on Janet Yellen. Now six months into his administration, the Wall Street Journal reports yesterday she is a top contender to remain at her post for a second term. The President reportedly believes she is doing a “good job” and “has a lot of respect for her.” Maybe he does and maybe he doesn’t, but he’s not any longer going to say publicly anything else.
It’s a violation, though, of the spirit of “reflation” that started on the premise of different. Markets, I believe, want Trump to trash Yellen and everything she stands for; because what she stands for is more of the same appalling economic conditions. Ben Bernanke accused the President a few weeks ago of holding a dystopian view of the economy, an economy that Bernanke handed to Yellen under what he called a recovery. Who is actually dystopian?
The bond and eurodollar markets in particular have crawled back down into pessimism again in 2017 on the growing realization that even bland platitudes expressed about Janet Yellen are in many important ways holding to the same old paradigm. The world wants radical; truly desperate for it.
One reason is inflation. The concentration on the CPI or the PCE Deflator seems overly obsessive considering. After all, nobody really wants inflation apart from economists who think always like it could be 1929. Even at 2%, that’s enough to rob a slow, insufficient trend of enough to make it that much more painful especially for workers.
The issue, however, isn’t truly inflation as consumer prices, as even CNBC has finally come round to understand:
