Don’t Panic About a Little Inflation

Michael Strain, writing in the Washington Post contends that, on balance, a little inflation is better than a lot of unemployment.

One “line of thought, now that the unemployment rate is below 6 percent and may continue to fall, the Fed needs to raise interest rates sooner and faster than is typically expected.”

“Ultimately, though, the Fed should be patient. It shouldn’t rush to raise interest rates despite the relatively low and falling unemployment rate.”

“A little inflation above the Fed’s preferred rate isn’t the end of the world — it’s a manageable problem, and may even be desirable. Letting millions of workers sit on the sidelines of the labor market is a bigger problem.”

“The fundamental logic of monetary policy is the same as it’s been for years now: Prices aren’t rising as rapidly as the Fed would like them to, and the labor market isn’t using workers to their fullest extent. The Fed is still missing on both sides of its ‘ dual mandate.’ Prudence thus dictates a patient return to normal monetary policy. And the unemployment rate falling below 6 percent shouldn’t fundamentally change anything.”

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  • NMoshe

    It’s all a part of the class war that the ultra-wealthy perpetuates against the rest of us. Inflation harms creditors and bond-holders, who are overwhelmingly very wealthy. They would prefer deflation if they could get away with it. Targeting inflation has the side effect of pushing up unemployment, another desired outcome if the goal is to keep down wages.

    • embo66

      We just conducted the world’s biggest experiment on Keynesian economics versus those who believe inflation is by far the bigger danger. Considering that Europe took the latter approach — and more than 5 years later is still not safely out of the woods — it’s pretty clear that stimulating the economy with government spending was the better answer.

      I also believe the U.S. would be further along a more robust recovery had we not been forced politically to accommodate the likes of Paul Ryan and his ilk, insistent on austerity and slashing federal spending.

      Inflation hasn’t been a serious danger since we started ramping up the financialization of our economy back in the 1980s — the same financialization that has so enriched the few at the expense of the many.

      But it’s clearly still a useful bogeyman to scare the masses. Which is also why the wealthy’s slavemasters — Republicans — are always going on about it.

      However, even the super-ultra-rich as starting to perceive some problems with today’s raging income inequality: Not enough millions on the bottom to keep them safely afloat in their crystal palaces.

      IOW, a few are finally beginning to see that they can no longer squeeze blood out of the humans they’ve so successfully turned into turnips.

  • Richard Vandiamondsworth

    The unemployment rate is “under 6%” because those whose benefits ran out and those who gave up looking for work are not counted. obamanomics!

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