When's the Right Time to Worry About Inflation?

Last month, Alan Blinder warned that the main risk in monetary policy was pulling away from the stimulus too soon. We responded by pointing out that there was also a danger of letting the liquidity surge roll on too long. The challenge is finding a balance between the two, we argued.

In a follow-up piece today, Blinder basically reiterates his earlier article, asserting that "inflation isn't the danger." But he hedges himself a bit this time, advising: "As long as expected inflation doesn’t rise much further, you should find something else to worry about."

We couldn't agree more. Inflation's never a problem, until it becomes one. For the moment, the market's expectation of inflation is, in fact, quite tame, as Blinder points out. But it's not today we're worried about.

Blinder says the Fed is aware of the extraordinary liquidity it's created and that the central bank will do the right thing at the right time. We all know what the right thing will be--tightening the monetary policy levers. Figuring out the right time to do so will be devilishly tricky. In fact, getting the timing exactly right is virtually impossible. The only question, then, is how do you want to err? Early or late?

Comments

[prairiedog555:]

What liquidity? Housing market, Autos, consumer goods? I know they are printing money but it is not going to the consumer, nobody can get a loan except the banks. That is why I think this inflation talk is premature. Like out to 2011.

Jun 22 09:10 AM

[fireball:]

coca-cola large 10 cents small 7 cents. gasoline 20 to 30 cents per gallon. i just didn't know to worry as a boy.
i guess the fdr scam was the time to start worrying or maybe the passage of the 16th and 17th.
the gold and silver i hold lessen the worry.

Jun 22 12:43 PM

[Valley Boy:]

The current inflation in commodities will depress the rest of the economy for awhile. That process will in time drag down the inflated prices in commodities. The economy should bottom when this inflation vs. deflation impasse reaches a rough equilibrium and when most of the private debt load has been paid off or writen off. Keeping interest rates low and reducing the government expenditures and taxes should hasten the bottoming process so that we can work on a healthy recovery sooner than later.

Jun 22 03:37 PM

[John Bowman:]

I have the greatest confidence that the Fed will make the right moves.....at the wrong time.

Jun 22 10:44 PM