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Bigger things to fret about than Bernanke-bred inflation

Bigger things to fret about than Bernanke-bred inflation
Inflation isn’t the most critical issue raised by the Fed’s actions over the past two-and-a-half years.
Jon Talton

Special to The Seattle Times


A House Budget Committee worried about inflation parked Fed Chairman Ben Bernanke on the front burner last week. But Paul Kasriel, chief economist of Northern Trust in Chicago, was not impressed.

“Everybody needs to cool their jets on inflation,” he told me after the hearing. “There’s a tremendous amount of misinformation out there.”

For example? Although interest rates have lately been creeping up, that’s a sign of a recovering economy and fresh demand for credit, not a harbinger of inflation.

Rising commodity and food prices are more linked to increased demand in the developing world (also driving oil prices) and droughts that cut crop yields.

What’s most significant to Kasriel and other economists is the so-called break-even inflation rate, the difference between the nominal and real yield on an inflation-linked investment. And that’s been tame.

“This is the market’s estimate,” he said. “An economist can forecast anything. But this is what people who are actually putting money on the line are saying, and they’re not that concerned.”

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