Thursday, April 28, 2011

Bernanke Speak translated (MacroBusinessSuperBlog)

Inflation expectations my butt

So, Bernanke has given markets what they need to hear. First, it’s damn the lifeboats on commodities inflation:
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The unemployment rate remains elevated, and measures of underlying inflation continue to be somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Increases in the prices of energy and other commodities have pushed up inflation in recent months. The Committee expects these effects to be transitory, but it will pay close attention to the evolution of inflation and inflation expectations. The Committee continues to anticipate a gradual return to higher levels of resource utilization in a context of price stability.
Next, it’s whatever you want, whenever you need it:
To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and will complete purchases of $600 billion of longer-term Treasury securities by the end of the current quarter. The Committee will regularly review the size and composition of its securities holdings in light of incoming information and is prepared to adjust those holdings as needed to best foster maximum employment and price stability.
Now, don’t get me wrong, I have some sympathy with the US position. Since the GFC, which began the reckoning of the global imbalances (which were in part caused by loose  US monetary policy), the US has faced an intractable problem in its trade deficit with China because the latter won’t budge on its currency, when it damn well should. In this context I can accept the justification for loose monetary policy to a degree.


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