Fed's Kocherlakota thinks that more expected inflation is a good thing, as is QE2

Kocherlakota's comments require a bit of framing.  The most damning thing is that they admit that QE2 will cause inflation.  They say that it will be modest.  I say that we are already at negative real interest rates, this will just push the interest rate more negative.  Once the interest rates turn negative there are a whole host of negative unintended consequences. 

A lot of people are screaming that there will be inflation on the horizon.  I tend to agree, however, we don't know if that inflation will come in the form of a general price increase, or an asset bubble.  Via WSJ:
"To a limited extent, this should be a good thing in some sense, to have more expected inflation," Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said.

The Federal Reserve embarked this month on an effort that will buy $600 billion in longer-term Treasury debt through the middle of next year. It is trying to stimulate growth, lower unemployment and bring low inflation levels up toward its target range. That effort is controversial: Many fear a rapid expansion of the already large Fed balance sheet will fuel a surge in inflation.

Kocherlakota explained he believes "very efficient, very rational" financial markets understand what the Fed is doing and don't see the action as the harbinger of an inflation meltdown.


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