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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