The Perils of Inflation Targeting
By MIKE WHITNEY
So, what is Bernanke going to say at today's meeting?
Ahhh, that's where the surprise comes in, but there was a clue in an article last week on Bloomberg News. Here's an excerpt from the article:
"Federal Reserve officials are discussing whether to adopt an explicit target for inflation, a strategy long advocated by Chairman Ben S. Bernanke .... An inflation target could help quiet critics of record monetary stimulus and anchor public expectations for consumer prices should the Fed in coming months try to spur the recovery by keeping interest rates close to zero for longer.
"My sense is that this may be a done deal, though not one likely to be implemented soon, and perhaps not until economic conditions return to closer to normal," said Laurence Meyer, senior managing director and co-founder of Macroeconomic Advisers LLC and a former Fed governor.
"The chairman is obviously for it, and it is hard to find anybody on the FOMC who now is really opposed to it." ("Fed Officials Said to Discuss Adopting Inflation Target Backed by Bernanke", Bloomberg)
So, an inflation target is a "done deal"? Really? But what does that mean?
Once the Fed sets an "explicit inflation target", then (if the CPI is below the target and rates are already at zero, as they are today) the Fed can buy as many bonds as they please until their goal is reached. If that sounds a lot like Quantitative Easing; it's because it's the same thing. (Although this time it will probably involve rate caps on medium-term Treasuries) Is that what Bernanke is doing; announcing a third round of his controversial bond purchasing program without using the same name?
It sure looks like it. In fact, any mention today of "inflation targeting" at today's FOMC meeting should be taken as a sign that Bernanke is planning another bond buying binge, despite the fact that the only people who really benefited from the program have been investors who've seen stock prices skyrocket from the money that's shifted out of bonds into equities. All the gains from QE2 went to Wall Street.
You can read the whole article here: http://counterpunch.com/whitney06232011.html