QE3 Is Inevitable
Minneapolis Fed President Narayana Kocherlakota is currently my favorite member of the Federal Open Market Committee (FOMC). That's partially because of his ability to see both sides of an argument, but it's mainly because of his honesty in describing our current economic situation. Case in point: During the Q&A after his Wednesday speech, he explained that it might be useful to run inflation higher than the Fed's 2% target in order to improve unemployment.
This is something that has irritated me for quite a while about the current state of the monetary policy debate. There are very legitimate theoretical reasons why the Fed might add more monetary stimulus at this time, but they all involve a tradeoff of more inflation in exchange for more growth. Indeed, if the Fed does attempt more stimulus, the only way it can have any impact on growth is for it to also have an impact on inflation. For example, some believe that we could solve the unemployment problem if we could just get wages to drop. This suggests that it's a simple supply/demand problem. If there isn't enough demand for all the labor that is supplied, the price should go down....469 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.
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