While some economists have mocked worries about inflation given its quiescence over the last five years, some troublesome signs have emerged on the price front, according to Wall Street Journal columnist Spencer Jakab.
The primary concern is the staggering amount of easing the Federal Reserve has embarked upon before, during and after the 2008-09 financial crisis. That accommodation has led to a tripling of money supply.
Two Federal Reserve Bank presidents – Charles Plosser of Philadelphia and Esther George of Kansas City – expressed worry last week that the Fed could lose its hard-earned reputation as an inflation fighter and destabilize the financial system with its radical easing measures, Jakab writes.
Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown
Meanwhile, Bill Gross co-chief investment officer of fund giant Pimco, points out in his monthly commentary that the Fed’s purchase of Treasurys and mortgage securities means it’s financing 80 percent of the budget deficit. Savers may ultimately suffer the consequences, he writes.
Chicago Fed President Charles Evans offered a defense of the Fed’s easing in a speech Sunday, and said the government should gradually reduce the deficit while the central bank provides support to the economy.
He lauded the Fed’s establishment of a 6.5-percent threshold for unemployment before it raises interest rates, Bloomberg reports.
With that target, “markets can be more confident that we will provide the monetary accommodation necessary to close the large resource gaps that currently exist,” Evans said.
Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown
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