“The Shadow”

I´m not talking about the super-hero but about the Shadow Open Market Committee” (SOMC). They had a symposium 28 months ago and the keynote speaker was Charles Plosser (who must have been “shadow boxing” with himself):

If this forecast is broadly accurate, then monetary policy will have to reverse course in the not-too-distant future and begin to remove the massive amount of accommodation it has supplied to the economy. Failure to do so in a timely manner could have serious consequences for inflation and economic stability in the future. To avoid this outcome, the Fed must confront at least two challenges. The first is selecting the appropriate time to begin unwinding the accommodation. The second is how to use the available tools to move monetary policy toward a more neutral stance over time.

Another presenter and SOMC member was Michael Bordo:

The Great Recession of 2007-2009 is now over and the U.S. economy is expanding nicely as are most economies. The recovery from the recession reflects the operation of normal market forces and expansionary monetary policy by the Federal Reserve and other central banks. Many observers argue that the recovery in the U.S. is still anemic because the unemployment rate is still close to 9% and there is considerable economic slack. They argue that the Fed should continue on its expansionary track to insure that the recovery will be durable and strong.

The problem is that expansionary monetary policy by the Fed and by central banks around the world is creating incipient inflationary pressure which is already manifest in rising commodity prices and in headline inflation in both emerging and some advanced countries.

Both the record of economic history and recent empirical work suggests that we may be in for a significant run up of global and U.S. inflation in the not too distant future.

Maybe a bit more than 9 quarters does not qualify as “not too distant future” but let´s see what happened to inflation since those ominous words were pronounced.

Shadow

Have they learned from experience? Maybe Michael Bordo has because I couldn´t link him to “inflation risk” searches since. But that´s not the case for Plosser. His name is almost synonymous with “inflation risk”!

3 thoughts on ““The Shadow”

  1. Excellent blogging.

    But, Marcus, you forget to consider the huge amount of “psychic income” derived by those who pompously pettifog about inflation. Though not measured in official GDP stats, perhaps it should be. Some people seem to obtain euphoria only when sanctimoniously sermonizing about the peril of inflation.

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