In a June 20 commentary, University of California, San Diego, economist James Hamilton looked at the potential inflationary effects of the vast expansion of the Federal Reserve’s balance sheet over the last two years. He concludes that these actions are unlikely to be inflationary, but Hamilton fears that projected federal budget deficits in coming years will be.
A June 14 essay by Federal Reserve Bank of St. Louis economist Yi Wen examined the differences in the perceived costs of inflation between economists and the public; the former tend to see inflation as not very costly, economically, while the latter see it as very costly. He concludes that people associate inflation with budget deficits and thus see it as a kind of tax.
On June 13, James Hamilton examined the rising price of gold compared to the falling prices of other commodities and leading indicators of inflation, and concluded that gold is an anomaly that does not necessarily reflect rising inflationary expectations.
On June 7, the Federal Reserve Bank of San Francisco published a study of various measures of inflation to see which would be best to guide monetary policy. It concluded that an adjusted version of the personal consumption expenditures price index published by the Department of Commerce was a better indicator of inflation for monetary purposes than the better known Consumer Price Index published by the Bureau of Labor Statistics.
In a June study, University of Chicago economist John Cochrane foresees inflation as likely from recent government fiscal actions. This will come about long before the national debt reaches its pinnacle or the Fed monetizes the debt in earnest because markets are forward-looking, he says.
Economist Paul Krugman threw cold water on inflation fears in a May 25 blog post and linked to an interesting paper by the Peterson Institute’s Adam Posen showing the ineffectiveness of quantitative easing in Japan. Posen concluded that the Japanese experience demonstrates “the validity of much textbook, even old fashioned Keynesian, macroeconomics.”
● National Economic Council director Larry Summers also defended Keynesian macroeconomics in a speech at Johns Hopkins on May 24.
Also on May 25, Federal Reserve Board chairman Ben Bernanke defended central bank independence as a bulwark against inflation in a Tokyo speech.
A May 19 study by the Federal Reserve Bank of Cleveland examined all the items in the Consumer Price Index to see which ones best predicted future inflation. It found that those that did so tend to be “sticky”—changing only infrequently—while those that were more flexible tended to be too volatile to provide useful information.
A study from the Federal Reserve Bank of Chicago released on May 6 examined the question of causality between wages and inflation. Contrary to the Phillips Curve, the study finds that inflation causes wages to rise rather than the other way around.
The Federal Open Market Committee’s latest minutes from its April 26 meeting show that three members were concerned enough about inflation to request an increase in the federal funds rate.
Bruce Bartlett is an American historian and columnist who focuses on the intersection between politics and economics. He has written for Forbes Magazine and Creators Syndicate, and his work is informed by many years in government, including as a senior policy analyst in the Reagan White House. He is the author of seven books including the New York Times best-seller, Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy (Doubleday, 2006)
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