Fed’s Economic Model Says Oil Will Drop To $0 By 2019

The Fed’s economic views on inflation, sentiment, growth, economic drivers, and Keynesian stimulus have been proven wrong so many times, in so many ways, yet the Fed never discards its models that don’t work. Here is a beauty that shows the absurdity of inflation expectations and the price of oil.

Please consider the St. Louis Fed article What Future Oil Price Is Consistent with Current Inflation Expectations? by By Alejandro Badel, Economist, and Joseph McGillicuddy, Research Associate.

Mish Alternate Proposals

The model was dependent on China maintaining unrealistically high growth perpetually.

The model does not work well in periods of global demographic shifts (China, US, Europe)

The model does not work well in deflationary conditions.

The model does not work well in periods of global rebalancing.

Twenty years is not a long enough timeline from which to create an economic model.

The Fed’s inflation expectations model is a curve-fitting illusion. It never really worked in the first place.

All of those are possible, but I believe points 1, 5, and 6 are the key factors, with emphasis on points 5 and 6.

Fed economists are not predicting $0 oil. Rather $0 is simply what their model says it should be. Regardless of reason, we now have proof of the absurdity of their inflation expectations model.