Inflation Expectations Creeping Up

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"Inflation Expectations Creeping Up"

Some good news from Ryan Avent on the inflation expectations front:

Inflation expectations are inching up. That’s good! The Fed began QE2 in order to reverse a steady decline in expectations, and a rise in expectations reduces real interest rates, which helps to stimulate the economy.

There are only two problems here. One is that though expectations are now moving in the right direction, they’re still lower than would be optimal. It’d be nice to see expectations pushed all the way up to Reaganesque levels in the 4 or 5 percent range, but even if that’s unrealistic ten year expectations could at least get above two. The other problem is that any hint of effective monetary policy and growth expectations seems to spark a new round of crazy talk from Fed hawks about the need to tighten policy.

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