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Fed Official Makes The Case Of Letting Inflation Overshoot

Sunday, October 17, 2010 - 3:59 PM
Wall Street Journal article has a review of a speech given by the Federal Reserve Bank of Chicago President Charles Evans:
The Federal Reserve may have to let inflation overshoot levels consistent with price stability as part of a broader attempt to help stimulate the economy, a U.S. central bank official said Saturday.

Here's the full text of Evans' speech. Evans will be a FOMC voting member next year.
2
Ken TuminKen Tumin5,441 posts since
Nov 29, 2009
Rep Points: 123,675
1. Sunday, October 17, 2010 - 9:41 PM
It all portends for lower rates for savers. This scheme is all designed to force savers into the stock market, nothing more.
2
PurplesagePurplesage26 posts since
Oct 11, 2010
Rep Points: 75
2. Tuesday, October 19, 2010 - 11:28 AM
Actually, this policy is just ill considered and will only backfire, and at the expense of savers in particular but the economy overall -- inflation is very damaging to the economy. In fact, at this point, warning they will be raising rates sooner than later will do more to boost the economy than anything else.

Lower interest rates are NOT going to entice anyone to borrow if the low rates already out there have not done so. Once rates get low enough, any lower will not provide any more incentive. And we passed that low-enough level a long time ago. At this point, letting people think they have nothing to lose on the interest they pay for a loan by waiting longer is only providing incentive for them to wait, and thus hold back the economy. If they fear interest rates will be going up soon, they will jump now before they have to pay more, and thus boost the economy.

The Fed is making a critical mistake at this juncture. And savers will be the biggest losers for it, and with nothing to show for the economic recovery from the policy.
6
me1004me1004343 posts since
Jan 16, 2010
Rep Points: 2,357
3. Tuesday, October 19, 2010 - 5:52 PM
I agree me1004.
5
tightwadtightwad27 posts since
Jun 7, 2010
Rep Points: 856
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