Fed Chair Janet Yellen brassed it out in her press conference, claiming that the failure in the Fed’s inflation target was the result of one-off, “idiosyncratic” price changes (such as mobile telephony and pharmaceuticals).

The market scampered out of short-dollar positions, and the Euro lost its entire earlier gain of nearly 0.8%. The Japanese yen gave up about half its earlier gains, and gold dropped sharply. Kudos to Yellen for her bluffing skills; perhaps she will take up poker in her retirement.

As we explain in another post today, Yellen is arithmetically as well as conceptually wrong: inflation has been weak all along, but the weakness was masked by the sharp recovery in housing prices after the 2008 crash. Now that home prices have reached their previous peak, future price growth will moderate, and the underlying weakness in prices will be exposed.