31 August 2009

[US] Economists Are Split on Inflation

The following is excerpted from the 31 August 2009 edition of the “Wall Street Journal”.

Business economists are split on whether the [US] Federal Reserve's massive infusion of credit into the economy will lead to inflation in the next couple of years.

Half of 266 members of the National Association for Business Economics surveyed in August said the Fed's decisions to increase the money supply won't lead to inflation in the next few years, the NABE said Monday. Some 41% disagreed, though, citing "lagged effects of policies now in effect," "monetization of the debt" and "ineffective exit strategy" as their primary concerns.

The economists overall said they expect inflation excluding food and energy to average 3% from 2014 to 2018….

Recent debate over the Fed's strategy for reducing its large holdings of government bonds and mortgage-backed securities has centered on timing. If the Fed waits too long to bring the programs to a close, the economy runs the risk of inflation. But if it attempts to wind them down too soon, while the economy is still weak, it could hinder the recovery….

The majority, 56%, said the Fed was likely to keep interest rates stable over the next six months, whereas 44% expect an increase….