Did the Fed Say Inflation Risks Are Very High?

The Fed stated "inflation to remain subdued for some time as resource slack dampens cost pressures.” Does this really mean “inflation could skyrocket at any moment, but right we are really lucky to have too much supply to meet demand"?

Its true that these comments aren't new from the Fed as seen from Jeff Pietsch's article comparing today to the August meeting. However it does seem that the Fed is banking on the fact that they are out of the woods for the short-term and can continue to follow their easing policy actions.

The big question, though, is not when prices will go up due to heightened demand, but whether the recent move in gold has proven that commodity prices are taking high inflation for granted and therefore will rise before fundamentals support the move.

The answer may lie in the moves of energy prices. Crude and natural gas prices have rallied as the dollar has fallen, but have tended to react more closely to fundamental releases than the metals. If we begin to see crude take off and surpass $75 a barrel, even as inventories remain high, this may indicate that "resource slack" notwithstanding, high commodity prices and near term inflation will be arriving a lot quicker than the Fed would like.

Comments

[Dave Wrixon:]

We keep being told the economy is recoverying yet inflation is fine because of slack demand.

Talk about wanting your cake and eat it!

Sep 24 09:02 AM

[Michael Clark:]

Actually we are in a deflation cycle -- inflation is NOT in sight -- but the Fed wants to reassure us all that the economy is FINE.


On Sep 24 09:02 AM Dave Wrixon wrote:

> We keep being told the economy is recoverying yet inflation is fine
> because of slack demand.
>
> Talk about wanting your cake and eat it!

Sep 24 09:08 AM

[W Buffett:]

That's exactly what the Fed meant. And when inflation skyrockets, so will interest rates...

Sep 24 09:34 AM

[EUARTE:]

Inflation will come. When? I really don't know. However, it is going to come. Eco 101.
Inflation will cause prices of gold, oil, iron ore, etc. to rise. They then will be so high that a second vicious recession will quickly take place.
All fiat currencies will be negatively affected. Who will trust the dollar, the Euro or The Brsilian Real? No one.
A new international conference will have to revive and do something to currencies.
If Obama is still in power all sorts of Socialist nonsense will prevail and eventually a third recession
We are headed toward a generation of recessions.

Sep 24 12:50 PM