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We’re Turning Japanese…

Continuing on the them of 1) everyone saying the sky is falling and 2) deflation putting us into a Japanese spiral, I want to take one more look at it:

The US Federal Reserve cut interest rates to 1% in 15 months versus the Bank of Japan’s 51 months and the US cut the rates further to 0% only 2 months later versus the 46 months that the B of J took.  In the language surrounding the cuts, the Bank of Japan was very reluctant whereas the Fed said and continues to say that they will have an accommodating policy until growth is sustained.

The quick actions of the Fed also forced a strongly steep yield curve quickly whereas Japan flattened and went inverted:

The only question is whether the US policy has been or will be strong enough to turn the ship, not whether they tried hard enough.

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  1. Travis Robinson says

    My thinking is that with rates so low and not much lending taking place, the steepness of the curve may be misleading. If the 30 year yield had busted out to the high side of the range, I’d be more inclined to expect inflation. Not to say I’m necessarily expecting Japanese-style deflation, but stagflation seems more like it. How’s that for non-committal?



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