BofA: The World Is Developing An Inflation Problem

Saturday, April 13, 2013
By Paul Martin

Matthew Boesler
Apr. 13, 2013

Critics of sustained easy monetary policy in the United States often cite the potential for a surge in inflation down the road.

The real problem right now though, according to BofA Merrill Lynch economist Ethan Harris, is actually the opposite – disinflation (positive, but falling inflation rates).

“For central banks,” many of which have a 2 percent inflation target, says Harris, “this increases the pressure to maintain super-easy monetary policy.”

Most of the central banks across the developed world still aren’t generating enough inflation to hit their targets, even though many have pinned interest rates at or close to zero. The United States, Canada, the euro area, Sweden, Switzerland, Japan, and Norway all find themselves facing this issue (the U.K. and Australia are notable exceptions).

This struggle, says Harris, is behind the “shift to QE — a less predictable and more controversial policy tool.”

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