A new batch of self-described monetary policy theorists like Sarah Palin have insisted that the Fed’s quantitative easing program will cause runaway hyper-inflation and turn this country into Zimbabwe. Back on Planet Reality, core inflation has fallen to the lowest point in the history of the number being tracked, since 1957. Paul Krugman writes:
But I have a question here: why do economic forecasters keep predicting a near-time rise in core inflation, even though they are also predicting high unemployment? The Survey of Professional Forecasters now predicts average unemployment of 8.7 percent in 2012, which would seem to be a recipe for continuing disinflation and quite possibly deflation; but the same forecasters predict a noticeable rise in core inflation over the next two years.
I don’t really understand this, except as a fundamental unwillingness to face up to the Nipponization of the US economy.
The answer is that the forecasters are fools, and fools who have the same worldview as banks who don’t want to see higher inflation. So they forecast wrongly, and policymakers adjust to the forecast, and as a result we have the lowest inflation since at least 1957. And anyone who tells you otherwise is lying to you.
The current right-wing movement against the Fed plays against a backdrop of fake class resentment and goldbuggery. There are significant and proper reasons to criticize the Fed – for one, easing doesn’t seem to be working – but the inflation argument is seriously off the mark, and the broader push to eliminate the Fed’s maximum employment mandate is just a recipe for favoring the rich at all times, at all costs.
UPDATE: Essentially, we’re headed to the Dark Ages.