Fun With Disinflation

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"Fun With Disinflation"

Krugman points out that disinflationary trends are pointing to the conclusion that we’ll shortly be in the negative range by at least some measures. And I wouldn’t personally get too excited about the significance of the number zero in this context. The point is that inflation has been running below the Fed’s target rate for a while now so what we ought to be doing is running above the target rate for a while until we catch-up with where the price level ought to be. Instead, things are moving in the other direction.

Meanwhile, the White House is meekly giving up on any kind of non-trivial fiscal stimulus. So it really does all rest with the Federal Reserve now. I know that many people are skeptical that the Fed can substantially boost growth, but academic work by Krugman and by Ben Bernanke says otherwise. Indeed, besides Bernanke at least one regional Fed President concedes “there’s plenty more we could do”, the Open Market Committee just isn’t doing it.

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