So Fed hawks are all upset that expected inflation has risen since Bernanke announced QE3 — as indeed it has. Here’s the TIPS spread, the difference between the interest rate on ordinary 10-year bonds and inflation-protected securities:
Is this alarming? On the contrary, it’s the main purpose of the exercise. In simple models of expectations-based efforts to get out of a liquidity trap, the only way the Fed can get leverage is by promising higher inflation once the liquidity trap is over. You can complicate this story a bit — for example, a sluggish trigger finger also means that the expansion lasts longer and hence that firms will face higher real demand — but inflation expectations are the main target, and a rise in those expectations is a feature, not a bug.
This will come back to haunt Krugman, bookmark this post.
I did bookmark this post! This will be even better than Krugman's ''we need a housing bubble'' quote.
ReplyDeleteHaving said that, you should contact Krugman to make sure he wasn't joking. You know, since he was joking back in 2002 when he made that housing bubble remark. Haha.
In some sense, I should be thankful for Krugman. I haven't laughed this much ever since I started reading his stuff. What a comedian.
I doubt it will. His audience loves him for his left wing slanted economics, not for being right.
ReplyDeleteOh bookmark this when the non-existent "price inflation" hits that you've been warning about for over 3 years?
ReplyDeleteJust ignore the higher prices in food, metals, commodity prices, and 16+trillion in debt and QE 1, 2, and 3 and rapidly falling dollar.
DeleteSure Anon no inflation!? Your living real time get it? And not reading a fantasy novel.
And who by the way keeps the CPI and other financial statistics....oh yes, the holy and righteous federal government.
Anyone with two I.Q. points to rub together knows there is rabid inflation in food, energy, & commodities
DeleteYou know, the stuff you can't live without?
There is red-hot inflation in the pipeline, and this fall's poort crop harvest will exacerbate that condition.
@anon 12:33 – Non-existant? Have you been to the grocery store or the gas pump in the past three years?
ReplyDelete