Is It Hard to Inflate?

Reading Paul Krugman’s post today on I “Sam, Janet, and Fiscal Policy” I get the sense that he thinks it would be difficult for willing policymakers to create temporarily elevated inflation expectations.

To me, it seems like this would be easy. Note, for example, that increased Fed chatter about quantitative easing seems to have successfully reversed a downward trend in the TIPS spread:

When considering the whole issue, I think a lot of economists tend to underrate the potency of the “communications channel,” perhaps because it’s hard to model. But I think that if Ben Bernanke announces a new round of quantitative easing after the election and comes out and says “I’m doing this QE because I want to raise the price level and I’ll do more if it doesn’t go up fast enough” that the impact will be enormous. By contrast, if he keeps assuring people that he doesn’t want to see inflation peak over 2% under any circumstances, then recovery will be restrained.

This is, I freely concede, very much a media person’s way of looking at things rather than an economist’s. But in economic terms, a lot of financial markets activity has the qualities of a Keynesian beauty contest and clear communications guidance from policymakers can shift the coordination point. Then those financial activities have an impact on real activity.