The Fed thinks inflation is a bigger risk than it was in 2001, and bigger than Wall Street and many prominent economists think. That forces the Fed to accept a greater risk of recession than it did in 2001. That could mean either fewer rate cuts than anticipated by futures markets, which see the Fed’s short-term rate target falling to 3% by year-end from 4.25% now, or a quicker reversal of the rate cuts....
The most obvious inflationary threat is from oil. It has risen to almost $100 a barrel now from $61 at the end of 2006. That has sent the 12-month overall inflation rate up sharply, to 4.3% in November. By contrast, oil hovered just at just less than $30 for most of 2001 before sinking after the Sept. 11 terrorist attacks, and inflation ended the year at 1.6%....
The Fed, by allowing inflation to consistently run higher than its preferred range, risks feeding higher expectations of inflation in the public, which will make it harder to get inflation back down, Mr. Elmendorf noted.
from WSJ's Greg Ip
I like how they exclude food and fuel, because nobody buys those things.
No comments:
Post a Comment