posted on 30 December 2015
by Michael Haltman
The global central banks have injected many trillions of dollars into their given economies to create jobs and some inflation!
In the United States it's those items, job creation (maximum employment) and controlling inflation (stable prices), that are basically the Federal Reserves two primary mandates.
And, if inflation were to raise its ugly head, the tool that the Fed would use to swat it down it would be to raise interest rates.
Or for a simpler description of inflation that we learned in Economics 101, it is too many dollars chasing too few good.
But truth be told, despite the massive money-printing by the Fed, the economy has been chugging along at a very low and disappointing level (3rd quarter GDP +2.0%) and inflation is running well below the Feds target rate of 2.0%.
And, while the headline unemployment rate looks good, if one were to poke around under the hood the underlying statistics this far into an economic 'recovery' are not where they should be (i.e. U-6 unemployment rate in November at 9.6%).
Meanwhile the Fed, with the economy out of the post-financial crisis 'danger zone' for some time, had opted to keep fed funds at a crisis level rate of 0%. That is until this month when the FOMC raised rates .25% in the face of less than sterling global economic data ('Federal Reserve Gradualism: A Dangerous Game?').
So with that description of where the US economy currently stands, is the Fed between a rock and a hard place vis a vis interest rate policy? It most certainly is but in many respects it is a situation of its own creation!
Now back to the original question of why, with all of the money that the Fed has injected into the system, inflation (other than in certain sectors such as college and healthcare) is not running rampant?
Here is some logical rationale from an excellent article at Wolf Street titled...
So where's my free lunch?
Consumer Price Inflation v. Asset Price Inflation
Michael Haltman is President of Hallmark Abstract Service in New York. He can be reached at firstname.lastname@example.org.
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