When former European Central Bank (ECB) President Jean Claude Trichet raised interest rates in April 2011 in the midst of the European sovereign debt crisis, we were all left scratching our heads: What did he know that the rest of us didn’t?
In the end it was clear that he didn’t know anything more than the rest of us knew at that time. In fact, due to his intellectual rigidities, he may have ignored what he knew about how deep the problems were across Europe just to adhere to a rules-based approach to policymaking.
When Federal Reserve Chair Janet Yellen started talking about tightening U.S. policy, and then eventually raised rates this past December into an already slowing economy, the number of people left scratching their heads was far fewer. But the net result for the global economy will probably be even worse than the fallout from Trichet’s ill-timed policy decision in 2011.
Yellen has sealed the fates of emerging markets in terms of capital flows, which in turn seals the fate of developed markets for inflation and inflation expectations. And this is how inflation expectations are working out:
Jean Claude Yellen?
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