Good discussion of the Federal Housing Finance Administration on "All In W/ Chris Hayes":
Thursday, May 2, 2013
Jared Bernstein digs deep into the problems brought by very low inflation:
The Fed announced today that they’ll continue to be the only ones in town trying to do something about the stubbornly high unemployment rate:
The Federal Reserve said Wednesday that its stimulus campaign would press forward at the same pace it has maintained since December, putting to rest for now any suggestion that it was leaning toward doing less.Another symptom of our demand-weak economy, along with high unemployment and weaker job creation, is the recent deceleration in price growth, shown in the figure below.
The Fed’s “…statement also noted that the pace of inflation had slackened, a potential sign of economic weakness, but it showed little concern about that trend.”
Me, I’m pretty concerned about that trend. On the one hand, lower price growth means higher real wages, all else equal, and that’s important as slower nominal wage growth is another problem right now.
But on the other hand, low inflation is problematic in ways that are less obvious than the real wage story above. First off, faster inflation means lower real interest rates, and since the Fed’s already at zero (and can’t go lower), a bit more inflation would help in that regard. I’d bet we’d see more investment bucks move of the sidelines if that trend in the figure were to reverse course.
Higher inflation also chips away at nominal debt burdens and thus hastens deleveraging.
But the deeper, and more interesting, reason one worries about too-low inflation right now comes out of the work of Ackerlof et al back in the mid-1990s. It has to do with sticky wages, something Keynes recognized as contributing to intractably high UK unemployment back in the early 1920s.