PIMCO’s McCulley Call Wall Street Prices ‘Rationally Overvalued’

PIMCO chief economist Paul McCulley has been arguing that the Federal Reserve will keep the Fed funds rate low until labor finally gets a share of the recovery in the form of real wage growth, and in this month’s wide ranging Macro Perspectives he gives a more detailed explanation of the mechanism that he sees at play. Dornbusch explains exchange rate movements Going back to the mid-70s when Bretton Woods was still a recent memory and economists were making sense of floating exchange rates, McCulley says that the work of Rudi Dornbusch to explain why exchange rates weren’t behaving as…