Sunday, March 27, 2011
U.S. inflation spike won’t last, Lockhart says
This article touches on the current inflation rate and DR, and the expectations for these rates in the near future. In the month of February we have seen some of the highest inflation in years. Most notably, this inflation has arisen as a result of the shock on the global markets as a result of the turmoil over seas. But Lockhart believes that this sudden spike in inflation wont last, as energy prices will begin to slow down shortly. Additionally, in his current proposal for the Fed Lockhart has stated that the Fed should raise the DR to 2.5% and within the next two years the American deficit will be reduced by $1.45 Million. With these encouraging numbers, the future for the US economy seems to be on the right track.
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3 comments:
Housing market experiences deflation while inflation is taking over in everything else - not a good sign. The economy won't fully recover without housing market doing so. This article seems to be over-optimistic, but what else can Dennis Lockhart say? Just imagine him giving more truthful negative outlook. It will create panic and further hurt the situation. Hence, I don't think presidents of FED banks are free to say what they really think is going on.
I agree and think this article is a little too optimistic which is a common strategy to increase confidence in the economy. A greater transparency of the Fed's actions to the public is a goal that Ben Bernanke is pushing for right now. With greater transparency, it would be much more difficult to give false optimism to the general public. Hopefully Bernanke will be addressing the public more frequently in the near future.
Although there are some people arguing that the article is over-optimistic, I would urge them to take a look again. The inflation right now is largely due to the crisis in the Middle east and North African countries, most of which are crude oil exporters. The rise in gas leads to a rise of the cost of production in different goods and services. But soon, when everything is back to normal, that inflation spike will diminish. In addition, we do not have to worry much about the inflation since that's what good for the economy. We need some inflation rather than driving the economy towards deflation.
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