Issue 37 – The Fed Steps Down to Test the Lags

As you know, I’ve been of the view for several months that peak inflation is behind us and the trend has turned. I’ve rested my case on the potential deflationary effect of the speedy rise in the level of interest rates and the rapid decline of the money supply. There is, however, more to this story. The experience of the past 40 years does not evaporate in a few months. It demonstrates clearly that nominal GDP growth of 4% is what is sustainable – that is 2% for growth and 2% for inflation. Basically, the upticks that crossed N-GDP above 4% have mostly taken the form of higher inflation, except in the late 1990s when productivity surged.


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By Hubert Marleau

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By Hubert Marleau

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