Fed’s Mester: Oil Prices Can’t Go Down Indefinitely

Does she get paid to say things like ‘oil can’t go down forever” or “the dollar can’t keep going higher”? To me, this sounds like a person digging in her heels in a sunk cost fallacy. You know, the guy who keeps buying GPRO from $90 because he’s already lost so much, he might as well lose more.

Or the guy at the casino who won’t give up because of all of the time and money he’s lost. He justifies throwing good money after bad because of the sunk cost fallacy.

My current expectation is that the U.S. economy will work through this episode of market turbulence and the soft patch of economic data to regain its footing for moderate growth,” she said in prepared remarks at a Global Interdependence Center event in Sarasota, Florida.

Mester also said she still expects inflation to return to the Fed’s 2-percent target, even though it will remain “lower for longer” than previously thought.

“I take less of a signal from the downward moves in market-based measures of inflation compensation…these more likely reflect changes in liquidity premia and inflation risk premia rather than changes in inflation expectations,” she said.
Mester acknowledged, however, that policy will likely need to remain accommodative “for some time” given slow growth abroad, the strong dollar, more restrictive financial conditions and the hard-hit energy sector.

She noted that the impact of China’s slowdown on the global economy, market volatility and the risks of low oil prices need to be considered, but that it was still “premature” to make a material change to her outlook.

Consumer spending had started the year “on a strong note,” Mester said, and would continue to be supported by low oil prices.

Plainly, the Fed has been wrong, very wrong, on inflation–currently saddled at 1.4%, well below their target.

To say this:

“Oil prices cannot continue to decline indefinitely, nor can the dollar continue to appreciate forever,” she said. “At some point, both will regain some stability and the effect of previous changes on inflation will dissipate.”

You have a problem with your core thesis. Stop doubling down on a bad bet, Loretta. The inflation monster isn’t going to rear its head anytime soon. Moreover, making moronic speeches like this only serves to shatter investor confidence; hence, creating the deflationary environment that you’re trying to defeat.