Saturday, March 1, 2014

Fed Prez: Fed May Need to Let Inflation Run Hot to Meet Goals

The Federal Reserve should be willing to let inflation temporarily run above its target level so as to more quickly bring the economy back to health, said Chicago Fed President Charles Evans, during a debate with Philadelphia Fed President Charles Plosser, reports Reuters.

"If anything, the FOMC has been less aggressive than the policy loss function might admit," Evans told the University of Chicago's Booth School of Business conference on monetary policy in New York.

"The surest and quickest way to get to the objective is to be willing to overshoot in a manageable fashion," Evans said. "With regard to our inflation objective, we need to repeatedly state clearly that our 2 percent objective is not a ceiling for inflation."

Brace yourself, once price inflation acceleration becomes obvious, the Fed is going to be very slow to react. In the EPJ Daily Alert, I am forecasting that price inflation will climb to 5% or higher before there is any serious money printing slowdown by the Fed.

The Fed has promised to keep interest rates near zero until well past the time that the unemployment rate reaches 6.5 percent, as long as inflation does not threaten to rise above 2.5 percent.


  1. Let's see, what newspaper columnist has been saying the same thing? The arrogance of their folly is remarkable. Truly they suffer from the pretense of knowledge--but given their sinecures, they won't suffer the destructive effects their policies will wreak upon the populace.

  2. I'd hate to think how high real inflation is when the Fed pegs it at 5%. The cost of living in my town is exploding, mostly due to soaring real estate. Rental prices have doubled and tripled the last few years.

    Our city may soon raise water rates by a significant amount, the third time in recent memory. Restaurants, grocery store, auto repair work, they've all gone up. Glad the Fed Board Governors are only experiencing 2% inflation. The rest of us, not so lucky..

  3. If the government keeps changing it's ridiculous methodology for "calculating" (aka hiding) inflation, the Fed could probably do $1T/month of QE and the official CPI index probably wouldn't exceed 1.5% annual inflation. Meanwhile we will all be eating dog food, but thanks to substitution bias, according to the govt food prices will have been flat.

  4. inflation motivates consumption, more consumption means more demand, and more demand means more jobs and a better economy.

    Low inflation means thrift and hoarding, this is obviously bad for the economy and is the #1 job killer.

    1. Brilliant Daniel, Jerry couldn't have said it better!