The Fed once again dicks around!
Another round of quantitative easing would be just dandy, as is the decision to leave interest rates alone for another 2 plus years.
But this is small beer in an economy growing very slowly with high unemployment, low demand and a huge output gap.
What’s not on offer is what the Bank of Japan is doing: raising the inflation rate target.
The BOJ’s new initiative, first recommended years ago by a couple of Princeton economists called Krugman and Bernanke, is explicitly raising inflation expectations from 0 to 1%, not exactly wildly courageous (an inflation target of at least 5% is what Japan needs desperately after more than a decade of deflation) but unprecedented in the history of central banking.
It’s a very big deal that the media is missing completely.
At the moment, the Fed’s inflation target is a ridiculously low 2%.
A target of 4-5% is what’s needed, along with a clear statement that inflation expectations will be allowed to go even higher until unemployment drops below 7%. It’s clear that nothing much will be done about increasing demand on the fiscal side in an election year.
Gorilla says: “If only Ben Bernanke would become Ben Bernanke again!”
Tags: Bank Of Japan, Fed