The cross of a two-percent certificate of deposit

Last Thursday afternoon, Federal Reserve Bank of New York President William Dudley, one of the most insightful people in a club of very insightful people, said this with regard to inflation:

“If it turns out that structural changes have played a significant role, I would generally view this as a positive, rather than negative, development. It would imply that the U.S. economy could operate at a higher level of labor resource utilization without generating a troublesome large rise in inflation.”

I am not sure if I agree with this statement. If we are indeed in a new paradigm of very low inflation, which includes sluggish wage growth and abnormally low labor productivity, do we leave ourselves open to the potential of a troublesome rise of deflation? I say this because when I read President Dudley’s statement, I immediately thought of one of the most famous political speeches in American history, William Jennings Bryan’s “Cross of Gold” speech.

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