Fisher Turns to Fear Mongering

Dallas Federal Reserve President Richard Fisher is quick to continue his fear mongering about inflation.  Via Bloomberg:

“I do not see an overall argument for letting inflation rise to levels where we might scare the market,” Fisher said on Bloomberg Radio’s “The Hays Advantage” with Kathleen Hays and Vonnie Quinn. “We have seen a sharp rise in inflation expectations. If you let this get out of hand, then I think we will have a market reaction.”

Let’s go to the chart:

Stocksinf
You really can’t say that inflation expectations are surging beyond anything we have seen in the past six years.  Moreover, supporting inflation expectations was an expected outcome of Fed easing.  And financial markets seem to like it.

Also, it is not clear that TIPS-derived expectations are the best measure (a point I don’t make enough).  The Cleveland Federal Reserve works on teasing out inflation expectations, and on September 14th reported:

The Federal Reserve Bank of Cleveland reports that its latest estimate of 10-year expected inflation is 1.32 percent. In other words, the public currently expects the inflation rate to be less than 2 percent on average over the next decade.

Expyield

Yes, near term expectations have gained but from a too-low 1.2% to 1.8%.  Moreover, this would be expected not just from anticipation of QE3, but from the rise in gas prices (and note that oil prices are now falling again). By this measure, the more important longer term expectations remain mired well below the Fed’s 2% inflation target.  Let’s at least agree to stop worrying about inflation until we get expectations back up to the Fed’s target.

Bottom Line:  Fisher stays true to form, clutching to his fears of inflation like a drowning man grabs onto a life preserver.  My guess is that he doesn’t need to be marginalized by the doves; he does a fine job marginalizing himself.

This post was originally published at Tim Duy’s Fed Watch and is reproduced here with permission.

One Response to "Fisher Turns to Fear Mongering"

  1. B........   September 25, 2012 at 1:54 am

    Fisher fearmongering? Far from it! He's the only Fed Head with any common sense it seems to me. He asks the most basic question:what exactly does excess liquidity do for the economy and how will an even temporarily elevated price basket inflation rate help? The answer is little – as the past several years have shown – and also as Mr. Fisher's poll of business leaders shows. Mr. Fisher has mantained that its time for Congress to focus on its job – such as what will our tax bills be next year and what will Federal government spend? The biggest support for the economy presently comes from the fiscal side of things – not the Fed; however, so does the greatest policy uncertainty. Case closed.