Federal Reserve’s Fisher says inflation is not a risk in the U.S.

May 25, 2009 by · Leave a Comment
Filed under: Opinion 

I have to disagree with this assessment on our economic environment in the near future.  You can not pump the amount of money into the economy and drive interest rates to the floor via quantitative easing (printing money) and not bake in a significant risk of much higher inflation in the future.

The closer the economy thinks this recent rally is an actually new bull market, the sooner we will see inflation show its head through a sustain increase in prices.   Mr. Fisher even mentions that his calculations take out food and energy, that in my opinion are more important now being that people are spending less and putting their money towards the bare essentials and saving the rest for the uncertain future.

Another thing to keep in mind is that the United States Treasury is going to have to tap the bond market for over $2 trillion dollars this year even at a point where foreign investors are shunning our treasuries.  Last I read is that our last bond auction only have 16% participation and this is why bond yields are on the rise.  Don’t take my word for it, do some research and think about it yourself.

News (Reuters):

Dallas Federal Reserve President Richard Fisher said there was no sign of a problem with U.S. inflation at the moment, and revealed that Chinese officials had quizzed him on the Fed’s purchases of U.S. government bonds.

Fisher, who is not a voting member of the policy-setting Federal Open Market Committee (FOMC) in 2009, said research by his staff indicated that inflation was currently not a threat.

“I don’t think that’s the risk right now,” Fisher told the Wall Street Journal in an interview published on Monday. “Price increases are less and less. Ex-energy, ex-food, ex-tobacco you’ve got some mild deflation here and no inflation in the (broader) headline index,” he was quoted as saying.

Fisher, who is viewed as one of the Fed’s more prominent inflation hardliners, however, highlighted the need to reverse eventually the United States’ scheme to buy up billions of dollars’ worth of debt to help the nation out of recession.

Policymakers have to be “always mindful that whatever you put in, you are going to have to take out at some point. And also be mindful that there are these perceptions (about the possibility of monetizing the debt), which is why I have been sensitive about the issue of purchasing Treasuries,” he said.

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