Tags: fed | fisher | inflation | expectations

Fed’s Fisher: QE3 Has Sparked Inflation Expectations

Wednesday, 19 Sep 2012 03:06 PM

Federal Reserve Bank of Dallas President Richard Fisher said market expectations for U.S. consumer prices have surged following the Fed’s decision last week to purchase mortgage securities.

“I do not see an overall argument for letting inflation rise to levels where we might scare the markets,” Fisher said on Bloomberg Radio’s “Hays Advantage” with Kathleen Hays. “We have seen a sharp rise in inflation expectations.” That might be “indicating a little nervousness” from investors.

The five-year, five-year forward breakeven rate, which projects the pace of price increases starting in 2017, rose to 2.88 percent on Sept. 14, up half a percentage point from July 26.

Some economists, including Nobel Prize winner Paul Krugman, have said tolerating higher inflation could lead to an acceleration in U.S. growth. That position has been echoed by Chicago Fed President Charles Evans.

“I appreciate the arguments made by Mr. Krugman and others,” Fisher said, praising the Princeton University professor’s work on trade. If you allow higher prices, “how credible are you in clawing them back?” he said. “The question is at what point do you lose credibility?”

While “nobody sees an immediate threat of inflation,” Fisher said, ’’we are going to have to monitor this very closely.’’

Fisher, who doesn’t vote on monetary policy this year, opposed the Federal Open Market Committee decision last week to expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month in a third round of quantitative easing. The Fed is seeking to boost growth and reduce 8.1 percent unemployment.

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Dallas Fed President Richard Fisher said market expectations for U.S. consumer prices have surged following the Fed’s decision last week to purchase mortgage securities.
fed,fisher,inflation,expectations
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2012-06-19
Wednesday, 19 Sep 2012 03:06 PM
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