Supposed inflation monster isn’t rearing its head

Article Highlights

  • Bernanke has laid the groundwork for third major expansion of the Fed’s balance sheet #JacksonHole

    Tweet This

  • The Fed justifies its accommodation by pointing out that inflation is falling

    Tweet This

  • Each major intervention by the Fed since 2008 has come as inflation is falling towards zero

    Tweet This

  • The recent past has put inflation and inflation expectations on a downward trajectory

    Tweet This

  • The supposed inflation monster isn’t rearing its head

    Tweet This

At Jackson Hole, Fed Chairman Ben Bernanke continued to lay the groundwork for a third major expansion of the Fed’s balance sheet in the form of quantitative easing (QE-3).  While the Chairman didn't actually announce the program this weekend, he reiterated the Fed’s position that more purchases will be warranted fairly soon if the economy doesn’t pick up.

The Fed justifies its accommodation by pointing out that inflation is falling, contrary to GOP remonstrations that inflation is set to explode.  Indeed, each major intervention by the Fed since 2008 has come as inflation is falling towards zero, and the recent past has put inflation and inflation expectations on a downward trajectory.  The supposed inflation monster isn’t rearing its head.

The Fed uses "core inflation" - inflation minus food and energy prices - because it more closely anticipates what future inflation will be.  The Fed is less concerned with what prices are right now than they are with what prices will be tomorrow.  Core inflation helps them anticipate better than headline inflation does.  It's also a better measure of what the Fed can actually control.  The Fed can't do much about, say, the massive corn drought that's impacting food prices, but they can do things about the rates you pay for loans.   Sometimes the "core inflation" number is higher than headline inflation; sometimes it is lower.  This month, the two are close together.

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Daniel
Hanson

What's new on AEI

Making Ryan's tax plan smarter
image The teacher evaluation confronts the future
image How to reform the US immigration system
image Inversion hysteria
AEI on Facebook
Events Calendar
  • 25
    MON
  • 26
    TUE
  • 27
    WED
  • 28
    THU
  • 29
    FRI
Wednesday, August 27, 2014 | 3:00 p.m. – 4:15 p.m.
Teacher quality 2.0: Toward a new era in education reform

Please join AEI for a conversation among several contributors to the new volume “Teacher Quality 2.0: Toward a New Era in Education Reform” (Harvard Education Press, 2014), edited by Frederick M. Hess and Michael Q. McShane. Panelists will discuss the intersection of teacher-quality policy and innovation, exploring roadblocks and possibilities.

No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled today.
No events scheduled this day.
No events scheduled this day.