Mish is in a Conundrum About Conundrums.
This article is partially to blame: Fed’s Yellen upbeat on inflation.
Janet Yellen proclaimed today that she was upbeat on inflation. “My view is inflation remains basically well contained, and I think things look good going forward”.
“Long-term inflation expectations remain very well contained,” wage and salary growth and compensation overall is well contained, and productivity growth “remains extremely solid” she said.
Mish replies: Indeed not only is wage and salary growth “contained” but so is job growth as we discussed in Searching For Jobs and also in Where the hell are the jobs?. In fact, I am not sure that “contained” adequately describes the situation. Real wages have declined over the last four years and private sector employment is actually negative under the Bush administration. At any rate, let’s just accept as fact that wage growth is “contained” since I can not think of a better word either.
Yellen is wondering if this just another “Soft-Patch?” The Mish question of the day is this: How many “softs” does one get before it is just plain “soft” as opposed to “patchy”?
Housing starts were down by a mere 17.6% in March. It was the biggest drop since January 1991. Now how many jobs will be lost going forward if this is the start of a trend as opposed to a one time outlier? Bear in mind that it takes 150,000 jobs a month just to break even with immigration and population growth and we are not even hitting that every month.
Yellen said she shared Fed chairman Alan Greenspan’s puzzlement that long-term bond rates haven’t risen more in this tightening cycle: “Perhaps it is partially unraveled but I think there remains a bit of a conundrum there,” Yellen said.
There you have it folks, at least two members of the FED are in a conundrum.
Here is how I see it:
1) Jobs are stagnant
2) Real wages are negative
3) Housing is slowing
4) Inflation is contained
5) Productivity growth is solid
6) Long term yields have been relatively steady (barring a couple of panic spikes that dissipated)
Am I mistaken or would it be PERFECTLY NORMAL for long term treasury yields to be steady or even drop when the economy is slowing, wages are negative, inflation is contained, and productivity is rising?
Perhaps one thinks that Yellen and the FED are telling blatant lies about inflation but would those be lies as opposed to conundrums? Quite frankly, given the statements presented above, how can anyone be in a conundrum about long term rates?