Saturday, April 9, 2011

Edward Harrison on the Fed's Conundrum

"I would argue that inflation expectations are rising as we speak. They are still anchored but they will not be if they continue to rise any more. And if inflation expectations become unanchored, it will mean that policy tightening will have to be much more aggressive – and that leads us back to debt deflation in a hurry –exactly the problem CBs wish to avoid. If CBs are prudent, they will not only be aware of this Scylla – Charybdis conundrum, but act in order to keep the global economy away from either outcome."

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