Alan Blinder, "Concluding that the Fed is leading us into inflation assumes a degree of incompetence that I simply don’t buy"

By on June 21, 2009

Alan Blinder explains why inflation is not the problem to fear as some other economists do. Under the current abnormal circumstances, banks are too frightened to deploy the massive reserves provided by the Fed. Blinder points out that for the last three months the Consumer Price Index (CPI) has been negative and highlights three important factors in the inflation control process.

In brief:

  • The Fed needs to withdraw bank reserves at the correct rate.
  • The Fed is well aware of the exit problem and is competent enough to carry it out.
  • The Fed will start the exit process when the economy is still below full employment and inflation is below target.

SMA Comment: overrating the Fed’s competence could be hazardous to your wealth.



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