Wednesday, April 1, 2015

Martin Feldstein doesn't care about the inflation target

But he does want the Fed to raise rates soon and resolutely. Why? Because the labor market is too tight. Yes, I know (see here and here). One interesting thing is that a prominent Republican economist says that this is a "solid economic upturn." So there are some Republicans for Obama then.

More interestingly he suggests that the Fed's lack of preoccupation with inflation, since Janet Yellen does not seem to believe that 5.5% is the natural rate, is misplaced. But there is more. In his view, nobody should be concerned if inflation is below the target. In his words: "who cares if the inflation rate is a bit below an arbitrary 2% target?" Exactly, who cares about an arbitrary 2% target. Who? Feldstein of course, since he is really concerned that inflation would be above the arbitrary 2% target.

Besides, the notion that double digit inflation rates are around the corner is preposterous. And the problem of financial stability is not related low interest rates, but to the lack of regulation and the gutting of the Dodd-Frank legislation.

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