Thursday, September 18, 2008

The Good News on Inflation

Here is Mishkin on the subject (HT Mankiw):
But isn't the currently low fed-funds rate -- which is certainly below underlying inflation and implying a negative real policy rate -- very accommodative? Doesn't this mean that underlying inflation is likely to rise?
Again, the answer is no. It is true that real interest rates on federal funds and Treasury bills are very low. But we are in the throes of major financial disruption that has led to a slowing economy and a substantial widening of credit spreads, so the interest rates that businesses and households must pay to finance their purchases are not low at all.
Perry also talks about it here.

No comments: