This Inflation Scare Is Exactly What the Fed Was Hoping to Avoid

This Inflation Scare Is Exactly What the Fed Was Hoping to Avoid


It must be frustrating to make monetary policy at the Federal Reserve these days. Just before Labor Day last year the Fed proudly announced a new strategy that was mainly focused on preventing deflation—falling prices. Less than a year later it’s under fire for failing to prevent the opposite, inflation. On May 12 the Bureau of Labor Statistics announced that consumer prices had risen 4.2% in April from a year earlier, the most since 2008.

France’s Maginot Line lasted longer. To some critics, the Fed’s emphasis on combating deflation looks like a classic case of generals preparing to fight the last war.

Ben Bernanke, who was Fed chairman from 2006 to 2014, highlighted the risk of the new policy before there even was a new policy. After the Fed he took up residence at the Brookings Institution, where he wrote a series of papers that influenced what became the Fed’s new Statement on Longer-Run Goals and Monetary Policy Strategy. 



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