Dallas Fed president Robert Kaplan says the Low 10-Year Yield is an 'Ominous' Sign.

The Fed has raised rates twice this year, and is widely expected to do so again in December. But even as the short-term interest rate targeted by the Fed has climbed, the yield on the benchmark 10-year Treasury has fallen, a reversal of what usually happens and a development that Kaplan said he sees as “a little ominous.”“I view that as a comment on future economic growth,” Kaplan said at the Stanford Institute for Economic Policy Research. “And what I don’t want to see us do is raise rates so fast that we get an inverted yield curve because history has shown an inverted yield curve has tended to be a precursor to a recession.”

Patience Required

The BBC reports Fed urges patience as inflation lags.

Many policymakers are worried that the slow pick-up in price increases may be due to long-term trends, not just short-term factors. They urged that "some patience" guide the Fed as it considers plans to raise interest rates.

Inflation Benefits

The BBC is right on board with the Fed preaching the benefits of inflation.

Please consider How can inflation be good for you?

Most central banks favour an inflation target that is in the region of 2% to 2.5%. The Bank of England's target of 2% under the CPI measure is fairly typical. Some economists argue there should be a higher target in times of recession, such as 3%. This can promote higher growth, by keeping interest rates lower for longer.But whatever the precise level, most do agree that a little dose of inflation is absolutely essential."The most important thing to remember is that inflation is not an act of God, that inflation is not a catastrophe of the elements or a disease that comes like the plague," said the Austrian philosopher and economist Ludwig von Mises."Inflation is a policy."

Inflation is Theft

Inflation is certainly policy, but it's also theft. And quoting Ludwig von Mises as a proponent of inflation is beyond the pale. Let's look at Mises View of Inflation, in context.

Danger Charlatans at Work

The Fed wants to hit the "natural" rate of inflation but they do not even know what it is.Ironically, there is no such thing. But even if there was a natural rate, it would be impossible to measure because the Fed does not count asset bubbles or home prices in its measure of inflation.

For discussion please see Down the Rabbit Hole: SF Fed President John Williams Seeks “Direct Attack” on Low Inflation

Economic Challenge to Keynesians

Of all the widely believed but patently false economic beliefs is the absurd notion that falling consumer prices are bad for the economy and something must be done about them.

I have commented on this many times and have been vindicated not only by sound economic theory but also by actual historical examples.

My article Deflation Bonanza! (And the Fool’s Mission to Stop It) has a good synopsis.

And my Challenge to Keynesians “Prove Rising Prices Provide an Overall Economic Benefit” has gone unanswered.

There is no answer because history and logic both show that concerns over consumer price deflation are seriously misplaced.

“Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the BIS study.

It’s asset bubble deflation that is damaging.

Note that central banks’ seriously misguided attempts to fight routine consumer price deflation, they create destructive asset bubbles that eventually collapse. When those bubble burst, and they will, it will trigger debt deflation, which is what central banks ought to fear.

For a discussion of the BIS study, please see Historical Perspective on CPI Deflations: How Damaging are They?

Meanwhile economically illiterate writers bemoan deflation, as do most economists and central banks. The final irony in this ridiculous mix is central bank policies stimulate massive wealth inequality fueled by soaring stock prices.

Finally, please consider Barry Ritholtz Asks “Why Has Inflation Remained Low for So Long?” Mish Asks “Is Inflation Low?”

Inflation is in the eyes of the beholder. The Fed and economic writers in general are clueless when it comes to measuring it.

Please note I have moved my website to The Maven. For details, please see Welcome to the New MishTalk . 

Mike “Mish” Shedlock