“significant risks that inflation could decline and persist for a time at uncomfortably low levels,”
–Fed Minutes Dec. 15 – 16 2008
Is it even possible for inflation to be so low as to be uncomfortable? Awww crap, my wealth isn’t decreasing in value nearly fast enough? Dammit, I can’t pay this loan back if it isn’t inflated away faster? My money is worth way too much! Print more to depreciate it! Is that the thought process?
It is now clear that the very real specter of deflation has the Fed publicly panicking.
The discussion at the Fed now revolved around the proposal of setting an explicit target for inflation. While the discussion, the proposal and the mechanics of enforcing it are all pretty complex the whole sordid thing can be summed up and explained to even a young child such that they would understand completely. The explanation would go something like this:
“We promise to do everything in our power to steal at least 1% of all your wealth each and every year. If we discover that for whatever reason we were able to only steal less from you, we hereby promise to try harder. Make no mistake about it, you should expect and plan for us to steal at least 1% of your wealth from you, whether you like it or not. However, we will take great care not to steal more than about 2% every year.”
Isn’t a fiat currency regime coupled with with central banking fun?
(We will deflate anyways. But that’s another story for another post.)
Fed Officials Revive Discussion of Explicit Inflation Target: “
Federal Reserve officials revived the prospect of setting an explicit target for inflation to counter the risk that the worst economic slump in the postwar era will trigger a broad decline in prices.
The Federal Open Market Committee at its Dec. 15-16 meeting
discussed ways to avert deflation while approving a reduction in the benchmark interest rate to as low as zero, according to minutes of the gathering released yesterday. The FOMC also considered increasing emergency loans that have doubled the Fed’s balance sheet to $2.3 trillion in the past year.
Policy makers
“face considerable uncertainty about how inflation expectations could evolve,” said Brian Sack, deputy director at Macroeconomic Advisers LLC in Washington and a former Fed economist.
“That enhances the argument for taking the further step and adopting an explicit inflation objective.”
By setting a goal for price increases, the central bank would adopt a measure that the U.K., Sweden and other countries have used to anchor policy and build credibility with the public. Chairman Ben S.
