Whip (Up More) Inflation Now!


Federal Reserve of San Francisco analyst thinks we gotta keep the zero interest rate train rolling until it derails in some terrible tragedy. From the Wall Street Journal's "Real Time Economics" blog:

San Francisco Fed economist…Glenn Rudebusch says the Fed's history and its current economic expectations indicate "the funds rate should be near its zero lower bound not just for the next six or nine months, but for several years."

The economist said the Fed will need to maintain this stance in part because its current interest rate policy is not easy enough, having been constrained by an inability to go below zero…..

The policy Rudebusch is referring to is the one the Fed put in place at the end of last year, as it struggled to stimulate a rapidly faltering economy. The Fed then took a step unprecedented in the era of modern monetary policy-making and pegged its overnight target rate in a band between 0% and 0.25%….

….economic and banking troubles have been such that policy makers have been forced to adopt a radical agenda of emergency lending and direct market interventions, to create an environment where those rock-bottom borrowing rates can be more effective.

The inflationary effects of such low interest rates–the encouraging of borrowing effectively means the injection of more new money into the economy–are still thought to be a worry for another day by our monetary policy mavens. Which raises the risk that that other day will be very worrisome indeed. Mo money, mo problems, as a wise man once said.

The St. Louis Federal Reserve's scary monetary base growth chart.

For them that has forgotten the Gerald Ford interregnum, title explained, to the extent there's any rational explanation.