Clarida vs Powell

On October 3, Fed Chair Powell stated his view that the Fed funds rate was “a long way” from neutral.  On November 16, Vice Chair Clarida opined that rates were “close” to neutral.  Some in the financial media are making hay out of this, claiming that Clarida contradicted Powell.  

Part of this may be due to the media’s affinity for controversy, but it’s still a stretch.  There are at least two possibilities:  1)  The gap didn’t change and there is a genuine contradiction, or 2) The gap changed and there is no contradiction.  The second possibility seems not to have occurred to them.  The tacit assumption here is that the hypothetical “neutral” rate of interest could not have moved much over the course of a few weeks.  None of the reports of “contradiction” however have even attempted to make that case.  These reports are therefore a substance-free product of non-critical thinking.  

To the contrary, we pointed out last week in Deflation Accelerates the baselessness of the conventional assumption that inflation itself can’t change much in a short span of time.  Where’s the evidence for that?  That inflation only evolves gradually over months, quarters and years is nothing more than an illusion produced by metrics that can only detect the same.  

Economics is no different than most areas of research … you’re not likely to find what you’re not looking for.