The Fed Is Divided on Inflation

The Federal Reserve released the minutes of its most recent meeting. Like many economists, the members of the Fed disagree on the inflation/deflation debate. This is from the Fed’s minutes:

Participants discussed the extent to which the size of the Federal Reserve’s balance sheet would affect inflation expectations going forward. To keep inflation expectations well anchored, all agreed on the importance of the Federal Reserve continuing to communicate that it has the tools and willingness to begin withdrawing monetary policy accommodation at the appropriate time and pace to prevent any persistent increase in inflation. Overall, many participants viewed the risks to their inflation outlook over the next few quarters as being roughly balanced. A few continued to see some risk of substantial further disinflation, but that risk had eased somewhat further over the intermeeting period. Over a longer horizon, a few felt the risks were tilted to the upside.

My view is that stagflation is most likely. The government will report on consumer inflation tomorrow, and here’s part of my preview.

The official numbers will probably appear to be tame for the next few reports. After that, however, things may not look so good. Why am I so gloomy? Well, due to the severity of the recession, the government has pushed inflation concerned to the back-burner in an effort to revive the economy. The problem is that they’ve pumped so much money into the system that inflation will eventually come out. It’s not a question of if, it’s merely a question of when.

Read the whole thing.

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