China May Be the Answer to Janet Yellen's 'Mystery'
Long a source of disinflation, the country is now grappling with rising costs. That could reverse a global dynamic the former Fed chief once puzzled over.
Stumped.
Photographer: Chip Somodevilla/Getty Images North AmericaTreasury Secretary Janet Yellen's “mystery” may be moving toward resolution.
When she led the Federal Reserve, Yellen puzzled over inflation’s failure to fire despite low unemployment, years of shallow interest rates and several rounds of quantitative easing. Claudio Borio, a top official at the Bank for International Settlements, likened the situation to peering through a looking glass: Central banks that once strove to quash inflation subsequently found themselves trying to lift it. Both he and Mark Carney, then governor of the Bank of England, also spent some time sleuthing. At least part of the answer, they thought, lay in the globalization of labor markets. It no longer mattered much what the factory next door paid workers or charged for their products; the key was what the competitor or supplier on the other side of the world was doing.