They Are Starting to Pay Attention

The front-page headline in today’s Financial Times reads “Inflation outlook on US lowest for a year.”  So obviously some people in the financial community and in the financial press are beginning to realize that what monetary policy does affects inflation expectations.

Market expectations for US inflation have dropped to their lowest level in a year and are now below the Federal Reserve’s unofficial target, as investors respond to the central bank’s latest attempt to stimulate the economy.

The expected rate of inflation over the next 30 years, as measured by the difference between Treasury Inflation Protected Securities, Tips, and cash government bonds, dropped as low as 1.85 per cent in recent days from 2.73 per cent since last month. The rate was just under 2 per cent on Tuesday.

The article goes on to note that inflation expectations dropped after the FOMC announced Operation Twist, as gold and oil prices dropped, quoting a Deutsche Bank economist that the TIPS market shows that the Fed’s policy “is no longer seen as inflationary.”

The good news is that people are starting to catch on to what Scott Sumner and a few other lonely voices have been trying to tell us since the financial crisis.  The bad news is that the FOMC doesn’t appear to be among them.

This will be my last post for several days, as I am about to observe the Jewish New Year.  Sorry to go on leave when things seem to be getting really interesting in the blogosphere, but there are some things even more important than monetary policy.  Did I really just say that?  My best wishes go out to all of you for a happy, healthy, and peaceful New Year.

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6 Responses to “They Are Starting to Pay Attention”


  1. 1 Marcus Nunes September 28, 2011 at 9:31 am

    The fact that “Fed policy is not seen as inflationary” really means that spending (NGDP) is not expected to rise towards trend. Any guesses about the prospects for the stock market?

  2. 2 Benjamin Cole September 28, 2011 at 11:30 am

    Keep on blogging, keep seeking the limelight….

  3. 3 W. Peden September 28, 2011 at 2:59 pm

    I agree that inflation expectations are the great untold story in business right now.

    Happy new year!

  4. 4 Marcus Nunes September 29, 2011 at 7:35 am

    David
    I know you´re “in retreat” but when you get a chance take a look at this site:

    http://www.ngdp.info/ngdp.html

  5. 5 Thomas M Cole (@TMCole31) October 5, 2011 at 10:18 pm

    With gold at $1600 and food, gas and utilities skyrocketing, how can anyone talk about inflation being at 2%. More like 20% in the real world of goods.


  1. 1 It´s “home bread” | Historinhas Trackback on September 28, 2011 at 3:29 pm

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About Me

David Glasner
Washington, DC

I am an economist at the Federal Trade Commission. Nothing that you read on this blog necessarily reflects the views of the FTC or the individual commissioners. Although I work at the FTC as an antitrust economist, most of my research and writing has been on monetary economics and policy and the history of monetary theory. In my book Free Banking and Monetary Reform, I argued for a non-Monetarist non-Keynesian approach to monetary policy, based on a theory of a competitive supply of money. Over the years, I have become increasingly impressed by the similarities between my approach and that of R. G. Hawtrey and hope to bring Hawtrey's unduly neglected contributions to the attention of a wider audience.

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