Will Bernanke Be Too Hard on Inflation?
Brad DeLong rebuts the presumption that Bernanke will be too soft on inflation. Now where would some lame brain get such an idea anyway? Brad is ably assisted by Mark Thoma. Even those at the National review who endorsed Bush’s very good selection are clueless.
Bernanke’s critics from the left-leaning Keynesian camp are worried that he will be too inflation adverse and pursue tight monetary policies. For example, Michael Mandel asks “Will Bernanke’s Appointment Hurt Innovation and Technology?” But check out the comment section for what Dr. Lingle said. Then again, Max Sawicky points us to Galbraith the younger:
I’m a little bit concerned about the emphasis that Adam Posen already mentioned on inflation targeting as the sole or major objective of monetary policy because, of course, the Federal Reserve is bound by statute to a broader set of objectives which include primarily full employment, balanced growth and reasonable price stability … I would simply point to the implications of setting a more rigid target than the law provides for or that the practical conditions faced by the Federal Reserve will permit the chairman actually to pursue. And what you say about interest rates raises that, I think directly because the Federal Reserve has been raising interest rates. It’s raised them ten times over the last year or so. It’s running into a situation now where since long-term interest rates have not gone up at all it will either if it continues to raise interest rates, generate a condition called an inverted yield curve, which historically has been very damaging to the economy, tending to produce a recession, or if it stops, it may face the problem that the world’s holders of dollar assets may resume selling them off so that you end up losing value in the dollar and generating a renewed inflation threat that way.
Given that I have suggested that we are still shy of full employment, it is hard to argue with this statement. But then he was talking about the Greenspan FED – so if the Bernanke FED is a little softer on inflation over the next year, I’d like that. Of course, the National Review will disagree with me. I rest my case.