Checkers vs Chess Amid an Inflationary Great Mistake

Roughly a year into their campaign against high inflation, policy makers are some way from being able to declare victory. In the U.S. and Europe, underlying inflation is still around 5% or higher even as last year’s heady increases in energy and food prices fade from view. On both sides of the Atlantic, wage growth has stabilized at high levels and shows few signs of steady declines…

All that puts major central banks in a tricky spot. They need to decide if inflation has stalled way above their 2% target, which could require much higher interest rates to fix, or if inflation’s decline is only delayed. Get the call wrong, and they could push the rich world into a deep recession or force it to endure years of high inflation.

“It’s not an enviable situation that central banks are in,” said Stefan Gerlach, a former deputy governor of Ireland’s central bank. “You could make a major mistake either way.”

- The Wall Street Journal, June 19, 2023

Chess is like looking across an ocean. Checkers is like looking down a well.

~ Dr. Marion F. Tinsley


Editor’s Note: This is Part I of Volume II, Issue V of The Macro Value Monitor. Part II, The Art of (Paying Less Attention to) Noise, is available here.