The longer answer can be found in these charts which were released on September 13th, the same day that QEIII was announced:
The bottom panel shows that no one on the FOMC is predicting a surge in inflation from QEIII. The highest individual prediction in 2014 is 2.2% and in 2015 it's 2.3%. The "central tendencies" for those years are 1.8% - 2% in 2014 and 1.9% - 2% in 2015. You can read these numbers from the first table in the link provided above.
I just don't see that the Fed views their language in the QEIII statement or the minutes as seriously committing to higher than equilibrium (i.e. 2%) inflation in the future.
The FOMC is bullish on growth in 2014 and 2015 as can be seen from the top panel of the embedded chart, with a "central tendency" of their forecasts reported as 3.2% - 3.8%. Their long run forecast central tendency is 2.2% - 3%.
There is nothing in these forecasts that indicates the Fed expects NGDP to get back on anything resembling its pre-crash trend.
People, believe me when I tell you that I want the economy to recover. I want lots of new jobs created. I want there to be good times in America for all.
But I think people are projecting their own views onto Fed actions. The FOMC just isn't playing the game that the Woodfordians want them to play.
It's my view that it is impossible for the Fed to play and win the Woodfordian game, but I'd love to be proven wrong.
5 comments:
I was looking at the IGM forum and it doesn't appear that anybody thinks QE3 will do much to the price level. Here's the link
http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_02pBtPuOkYPP9bv
I don't get it. There has been uncounted billions (trillions?) printed (computer generated?) dumped into the economy in the past 4 years or so. Where is it? I just don't get it. How can so much money be created without causing inflation? Who is sitting on the money? Why? When will they spend or lend it?
Please enlighten me, or at least give your opinion.
SWF: well "depositary institutions" (banks) are sitting on around $1.5 trillion in excess reserves. This number historically is around zero.
http://research.stlouisfed.org/fred2/graph/?id=EXCRESNS
Thanks Angus. Will the banks sit on the money forever? I doubt it, I guess the question is when will they release the money? Then when they do how can i profit from it?
I think the pre-crash NGDP trend was determined by the employment to population ratio, the prevalence of part time work, productivity, population, and inflation. Since there's nothing the Fed can do about demographic change which has and may continue to be a force on the employment to population ratio, I think you're right that they do not have NGDP level targeting in mind. Inflation is sometimes useful, growth is always useful, but why should a constant level for the sum always be best?
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