Watch here my @CFR_org talk with @gilliantett yesterday where I talked about inflation, saying:
The @federalreserve has traditionally acted and spoken in ways designed to preempt inflation fears.
The @federalreserve has traditionally acted and spoken in ways designed to preempt inflation fears.
Today, the @federalreserve speaks in a way designed to preempt the idea the Fed MIGHT have inflation fears. That’s a very different thing and likely to contribute to development of an inflation psychology.
The famous doctrine of @federalreserve has always been William McChesney Martin’s remark: Fed’s job is to “take away the punch bowl” before the party gets out of hand. What we are now saying is we are not going to do anything until we see a bunch of drunk people staggering around
We are now saying, we are not going to worry about how inflation might come or inflation expectations. We are going to wait until inflation is here.
One thing we know is that monetary policy acts with a lag of a year to 18 months. And so a judgment that we are not going to act until we already have proven there are substantial inflationary expectations, is taking a very significant risk.
On current facts, should rates currently be increased? No, I definitely think not.
Should there be statements trying to convince people that nominal rates will stay at zero for the next three years?
If one thinks about the risks of asset price bubbles, the risks of having excessive short term debt on the national balance sheet, the risks of inflation breaking out, it seems to me a balance of risks would counsel expressing some concern about all of these things.
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