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Inflation Target May Be Too Low - Feds Rosengren

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http://uk.reuters.com/article/2015/04/21/usa-fed-rosengren-idUKL4N0XI1Y020150421

(Reuters) - Central banks including the Federal Reserve may need to set higher inflation targets in the future to avoid dealing with low economic growth, Eric Rosengren, president of the Federal Reserve Bank of Boston, said in an interview with the Financial Times.

Rosengren said he wanted the Federal Open Market Committee to debate about whether the United States' inflation target of 2 per cent was too low, the FT reported.(on.ft.com/1beSavX)

If inflation targets were set higher, it could mean a higher long-run policy rate, which would mean more room to cut interest rates before hitting the so-called "zero lower bound", Rosengren, who does not have a vote on the Fed's policy-setting committee this year, told FT.

The U.S. labor market needs to strengthen further and inflation needs to show signs of heading back up to 2 percent before the Federal Reserve will raise interest rates, Rosengren said in a speech in London last week.

The Fed set a 2 percent inflation target in 2012, under a dual mandate to seek maximum employment and price stability, a goal it has not hit since that year while its target rate has been at near-zero levels since 2008, the FT said.

Rosengren also said he expects first-quarter U.S. growth to be slower than the 2.2 percent recorded for the end of last year, the newspaper reported.

In a sign of an uptick in inflation, U.S. consumer prices increased for a second straight month in March on rising gasoline and housing costs.

Rosengren could not be reached for comments outside regular U.S. business hours.

given the sigfnificance of this now openly being discussed I think it merits its own thread. Seems likely to run.....

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Approx:

3% inflation prices doubling every 23.3 years

4% inflation prices doubling every 17.5 years

5% inflation prices doubling every 14 years

6% inflation prices doubling every 11.6 years

Which one are we going for???

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“Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.”

“Thus inflation is unjust and deflation is inexpedient. Of the two perhaps deflation is, if we rule out exaggerated inflations such as that of Germany, the worse; because it is worse, in an impoverished world, to provoke unemployment than to disappoint the rentier. But it is necessary that we should weigh one evil against the other. It is easier to agree that both are evils to be shunned.”

J M Keynes

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Approx:

3% inflation prices doubling every 23.3 years

4% inflation prices doubling every 17.5 years

5% inflation prices doubling every 14 years

6% inflation prices doubling every 11.6 years

Which one are we going for???

and wages.

and nominal asset prices.

In essence this is developing into a full on currency war. Bernanke fired the opening salvo against germany a couple of weeks ago with his warning about their current a/c surplus. Rosengren basically giving them another slap, admittedly rather circuitously.

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Approx:

3% inflation prices doubling every 23.3 years

4% inflation prices doubling every 17.5 years

5% inflation prices doubling every 14 years

6% inflation prices doubling every 11.6 years

Which one are we going for???

No idea?

Genuine question - re. House prices and these levels of inflation.

When inflation was rampant in the 70s and early 80s, did house prices really climb and climb ? Or were their price rises restricted by banks only lending 3-3.5 times earnings ?

And of course, the IR's were higher than 0.5%.....

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Price inflation of utilities, food and transport should track wage inflation. Interest rate policy has no effect on this group.

Asset inflation should be targeted in line with everything else (see above). Interest rate policy directly affects this group.

In other words policy rate has only one effect which is to cause asset bubbles/deflation. It cannot control wages or prices of utilities and food.

The best thing to do is return to a hard backed currency where there is no inflation.

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Approx:

3% inflation prices doubling every 23.3 years

4% inflation prices doubling every 17.5 years

5% inflation prices doubling every 14 years

6% inflation prices doubling every 11.6 years

Which one are we going for???

If it is the Bankrupt of England, it is 10%, in housing.

So we can all lilve happily ever after, the banks can issue funny money and charge interest whilst provide nothing of any real value and live like pigs in shit.

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(Reuters) - Central banks including the Federal Reserve may need to set higher inflation targets in the future to avoid dealing with low economic growth, Eric Rosengren, president of the Federal Reserve Bank of Boston, said in an interview with the Financial Times.

I'll take it as a sign that deflation has its grip. Firstly you have to read into Central Bank speech.. low economic growth still the main feature, and individual motivations when it comes from err CB individuals. Are they likely to get wider Central Bank consensus on this anyway?

The way to get good growth for years to come, is to first allow a hard correction, for wider asset redistribution at much lower prices (and fresh lending from banks) - from those who've seen it bid up and up over decades, and especially from those who've doubled down hard.. BTLers/second homes / property-investment companies.

You've heard the reasoning before. . . . Politicians have high-speed printing presses. They can make them run as fast as they please. In a choice, they would always want to inflate. Therefore there can never be deflation.

It is a sweet, simple argument. If it were true, it would make your job as an investor incredibly easy. All you would have to do to make a fortune is place a whole-hog bet on inflation. Just hock every asset you have, run your credit to the limit, and lie back to wait for the silly politicians to float your easy chair down to paradise on a river of red ink.

Those who say that government has the power to prevent deflation are right. But they are answering the wrong question. Obviously, the government can print all the money it wants. It can slap any number of zeros on a piece of paper and raise the nominal money supply to a higher power. This has always been true.

But it is a mistake to stop your inquiry there, because you have merely answered a misleading question. One could just as well say that "the government has the power to prevent you from dying of cancer." It can. By taking you out and shooting you first. But the cure in that case, like the printing-press cure for deflation, is worse than the disease.

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Another target for them to miss. They've been trying to increase general inflation for years (apparently) and all they've succeeded in doing is blowing asset bubbles.

So they want bigger asset bubbles. Unadulterated greed.

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“Thus inflation is unjust and deflation is inexpedient. Of the two perhaps deflation is, if we rule out exaggerated inflations such as that of Germany, the worse; because it is worse, in an impoverished world, to provoke unemployment than to disappoint the rentier. But it is necessary that we should weigh one evil against the other. It is easier to agree that both are evils to be shunned.”

Yet in the UK once you take everything into account (zero hours work, temporary work, paying for your unemployment through higher education fees/those economically inactive of working age, unemployed registered as self employed, unemployed registered as disabled plus the officially unemployed etc then effectively at least 30% of the working age population are unemployed.

At the moment (and it's been similar for many years now going well back beyond the last 6 years of record low interest rates including the money printing/QE - including periods of much higher official inflation) those running the UK have managed to create both "evils" simultaneously.

Edited by billybong

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It is only the debt that fuels the necessary inflation......when will we reach the saturation point, can't be long?

Edit:....all we need now is the 50p shops selling miniature portions. ;)

Edited by winkie

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Who told you that?!

St. Louis Fed ‏@stlouisfed 11h11 hours ago

FRED Blog: See how the economy performed under the gold standard pre-Fed http://******/1Gp5sUj

Over time it is stable, Personally I'd have thought volatile prices going up 5% then dropping 5% next year would not be a serious handicap to indbiduals or the economy.

also, the data may be dodgy " This price index for the 19th and early 20th centuries was constructed using different methods and with less information and precision than current price indexes use, which must be kept in mind when making comparisons between the pre-Fed era and modern times"

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(Reuters) - Central banks including the Federal Reserve may need to set higher inflation targets in the future to avoid dealing with low economic growth, Eric Rosengren, president of the Federal Reserve Bank of Boston, said in an interview with the Financial Times.

When there was significantly higher inflation for example in the 80s and 90s etc they were always on about how they wanted to get inflation down and as low as possible. They earn so much money for being inept and self serving. In the UK they never were able to "avoid dealing with low economic growth" no matter how much they manipulated the figures.

Edited by billybong

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We can't grow the economy fast enough to service our debts at current prices. By progressively devaluing the currency in which they're denominated they can be made serviceable again. Stagflation first (see Japan). Hyperinflation/default when that fails (see Venezuela). In this way asset prices and current prices can be brought back into balance. Naturally, this will not be without consequence for our living standards.

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Over time it is stable, Personally I'd have thought volatile prices going up 5% then dropping 5% next year would not be a serious handicap to indbiduals or the economy.

also, the data may be dodgy " This price index for the 19th and early 20th centuries was constructed using different methods and with less information and precision than current price indexes use, which must be kept in mind when making comparisons between the pre-Fed era and modern times"

Bet real price fluctuations - failed crops one year, bountiful crops next year played a big part in a real economy that was around then. Hence the rises and falls in prices around a fairly even long term price level.

Not the debt stuffed sham economics and GDP that is present nowadays.

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Price inflation of utilities, food and transport should track wage inflation. Interest rate policy has no effect on this group.

Asset inflation should be targeted in line with everything else (see above). Interest rate policy directly affects this group.

In other words policy rate has only one effect which is to cause asset bubbles/deflation. It cannot control wages or prices of utilities and food.

The best thing to do is return to a hard backed currency where there is no inflation.

There have been periods of inflation with gold, especially when there was either large finds or currency debasement as in the Roman era.

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