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Sunday, June 01, 2008

Yellen speech on economy and inflation

Janet Yellen, President of San Francisco Fed, ruled out stagflation scenario and she forecast "the most likely outcome over the next couple of years is that total and core inflation will moderate from present levels". But she thinks "The Federal Reserve cannot, however, be complacent about inflation".

She somewhat shares the worry that "even if the direct influences of commodity prices on inflation eventually dissipate, they could still cause trouble...higher inflation could become built into inflation expectations and become self-perpetuating". But she thinks so far there is no evidence for such case, especially inflation is very unlikely to pass on to the wage this time, causing a wage-price spiral like the 70s.

The full speech can be read here and her presentation slides here. Below are two nice charts from her presentation.