Tags: Volcker | Fed | Inflation

Volcker: Fed Will Eventually Need to Head Off Inflation

Friday, 10 Dec 2010 02:50 PM

Former Federal Reserve Chairman Paul Volcker, who is head of President Barack Obama’s Economic Recovery Advisory Board, said the Fed will eventually need to act to avert inflation after providing record monetary stimulus.

“The Federal Reserve will have to act in a timely way to head off inflationary consequences,” Volcker said today during a panel discussion in Washington. “I think they understand the problem.”

Fed Chairman Ben Bernanke, who said he prefers inflation of “2 percent or a bit below,” is leading the central bank in a program to purchase $600 billion in longer-term Treasury securities to boost growth and prevent too-low inflation. Republican lawmakers say the policy may fuel a surge in prices.

The Fed’s preferred gauge of inflation, the personal consumption expenditures index excluding food and energy, rose 0.9 percent in October from a year earlier. Including all items, the index increased 1.3 percent.

While inflationary pressures are “not a problem right now,” Volcker said he’s concerned about the commitment of central banks to 2 percent inflation.

“The popular rule for central banks now is somehow price stability, but price stability interpreted as 2 percent inflation,” said Volcker, 83. Over the course of a generation this rate of inflation cuts purchasing power in half, he said.

“It is not exactly my definition of stability but that is the rule that has become central to central banks around the world,” he said.

Tamer of Inflation

While Fed chairman from 1979 to 1987, Volcker raised interest rates as high as 20 percent to tame an annual inflation rate approaching 15 percent.

Asked about the legislative overhaul of U.S. financial regulation, Volcker said, “there is some danger if the Federal Reserve kind of becomes all powerful.’

The legislation creates a consumer bureau housed at the Fed, places the Fed chairman on a council of regulators to monitor firms for systemic risk to the economy and gives the Fed responsibility for overseeing ‘‘systemically important’’ firms.

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Former Federal Reserve Chairman Paul Volcker, who is head of President Barack Obama s Economic Recovery Advisory Board, said the Fed will eventually need to act to avert inflation after providing record monetary stimulus. The Federal Reserve will have to act in a timely...
Volcker,Fed,Inflation
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2010-50-10
Friday, 10 Dec 2010 02:50 PM
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