Comments on: The Fed’s Lone Dissenter

By: Ladies and Gentlemen, We Have Explicit Fed Targets | The Principal Blog

Ladies and Gentlemen, We Have Explicit Fed Targets | The Principal Blog — Wed, 12 Dec 2012 23:19:08 +0000

[...] else at the Fed. Well, not everyone…Jeffrey Lacker dissented again (I’ve mentioned Lacker before [...]

By: Robin Anderson, Economist, Principal Global Investors

Robin Anderson, Economist, Principal Global Investors — Tue, 13 Nov 2012 00:30:18 +0000

Jason,

Thanks so much for your comments and for reading the blog.

In the short- to medium-term, some inflation– if it comes in the form of wage inflation—may not be bad. But, this yet-to-be-realized modest wage inflation and the current low rates do, no doubt, harm savers and, may be, more harmful than people realize.

Funny thing is, when people start feeling good again, is exactly when people should start saving again. Ah, the Boom and bust cycles….

Robin

By: Jason

Jason — Fri, 09 Nov 2012 20:58:13 +0000

Robin, I think it’s quite obvious that interest rates are lower than a free market would set them. Which as you noted does adversely impact savers, but I think that’s the whole point. When you’re only getting a fraction of a percent in interest on your bank savings account you’re forced to try and chase higher returns merely to keep pace with the Fed’s stated inflation target.

And what does that do, it drives more money into the stock market and other more risky investments which keeps the nominal value of those investments moving upward to try and generate the “wealth effect” even though all the while the real purchasing power of those investments is falling due to rising prices cause by the inflation of the monetary base.

I mean isn’t that exactly what Bernanke said was the point of buying $40 billion of MBS each month in his Q/A portion after his speech in mid-september?