Greg Ip

Articles by The Economist’s U.S. Economics Editor

Archive for the ‘Deflation’ Category

Economics focus: Level Worship

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Price-level targeting could make monetary policy more potent—or just more confusing

Oct 28th 2010

[Greg Ip] EVER since Ben Bernanke, the chairman of the Federal Reserve, signalled in the summer that he stood ready to keep using unconventional monetary policy to shore up America’s fragile economic recovery, expectations have been building that the Fed will launch a second programme of quantitative easing (QE)—the purchase of bonds with newly printed money. That moment is likely to come at the Fed’s meeting on November 2nd-3rd. Whether QE2 can live up to the hype is another matter. QE aims to stimulate demand by lowering nominal long-term interest rates, much as conventional monetary easing works by lowering short-term nominal rates. But with short-term rates already close to zero and long-term rates also very low, the room for further reductions in nominal rates is tight.

There may in any case be another way to achieve the same stimulus. What matters for boosting demand is the real interest rate—the nominal rate minus expected inflation—since inflation reduces the burden of repaying debt. If nominal rates cannot fall any further, why not raise expected inflation? Central bankers have roundly rejected the most obvious way to do that. Raising official inflation-rate targets, they say, would destroy years of hard-won credibility. But they are more receptive to another idea: targeting the level of prices rather than the inflation rate.

The entire article is linked here.

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October 28, 2010 at 3:13 pm

Government bonds: A bull market in pessimism

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[Greg Ip] WHEN Japan slid into deflation in the mid-1990s bond investors were caught unawares. As late as 1995 yields on government bonds, a haven in times of deflation, were still approaching 5%. Investors today are not about to repeat that mistake. Inflation may be positive in America, Britain and Germany, but in all three countries government-bond yields have plunged to lows exceeded in recent times only by levels during the 2008 panic. Read the rest of this entry »

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August 20, 2010 at 4:00 pm

Global monetary policy: The central bankers’ burden

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 Deflation is not imminent but the rich world’s central banks must be ready to do what they can to fend it off

Jul 15th 2010

[Greg Ip] FOR people who pride themselves on being boring and cautious, the rich world’s central bankers have in the past few years proved to be a flamboyant bunch. Responding aggressively to financial panic, recession and the threat of deflation, they lowered short-term interest rates close to zero and many then plunged into the realm of the unconventional, buying government debt and extending vast new loans to banks. For the most part, they have avoided the rancorous disagreement that now consumes the debate over fiscal policy.

That consensus is fraying. Read the rest of this entry »

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July 15, 2010 at 4:00 pm

The inflation rate: Price puzzle

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Inflation figures fuel a debate over when the Fed should tighten

Mar 18th 2010 | WASHINGTON, DC | From The Economist print edition

[Greg Ip] TRACKING American interest rates is like watching paint dry. At its meeting on March 16th the Federal Reserve left its short-term rate target between zero and 0.25% for the tenth consecutive time, and, given “subdued inflation trends”, said it would probably leave it there for an “extended period”.

But just how subdued is inflation really? Frustratingly, the latest data provide ammunition for both the hawks, who question the need for extended low rates, and the doves, who don’t. Read the rest of this entry »

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March 18, 2010 at 4:00 pm

Dialing back the deflation watch

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In the tussle over whether deflation or inflation is the bigger threat I’ve been firmly in the deflation camp. In the last few weeks, though, I’ve tiptoed closer to neutral. Core inflation hasn’t dropped as much as I’d expected to date, and the drop that has occurred seems entirely due to owners’ equivalent rent. Goods prices inflation has been surprisingly sturdy.

Yesterday’s report by the Congressional Budget Office also prompted me to reexamine my assumptions. Read the rest of this entry »

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January 28, 2010 at 6:05 am

Central banks under fire: Policy punchbags

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Jan 14th 2010 | WASHINGTON, DC 
From The Economist print edition

From Argentina to America, politicians are taking aim

Illustration by S. Kambayashi
Illustration by S. Kambayashi


[Greg Ip] RICHARD FISHER, president of the Federal Reserve’s Dallas regional bank, did not hold back. Invoking the hyperinflation of Weimar Germany and Zimbabwe, he warned on January 12th that for Congress to tamper with the Fed’s independence would lead “directly to economic ruin.”

This is hyperbole, to be sure, but the threat of political meddling with independent central banks is genuine, and not just in America. Read the rest of this entry »

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January 14, 2010 at 5:00 pm

A roadmap for more Fed easing

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 Dec 4th 2009, 0:35 by The Economist | WASHINGTON

[Greg Ip] THE Federal Reserve by law is supposed to strive for stable prices and full employment. It has had great success on the first part, but with unemployment around 10%, it’s been an abysmal failure on the second. My colleague across the hall has noted the oddity of Ben Bernanke being grilled at today’s confirmation hearing on how to regulate banks but not on how he plans to get unemployment down.

Mr Bernanke might answer that with the federal funds rate around zero he is already doing all he can. He’d be wrong. Joseph Gagnon at the Peterson Institute (and a former senior staffer for Mr Bernanke at the Fed) has a new paper (PDF) that offers very specific advice on what more the Fed can do. Read the rest of this entry »

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December 4, 2009 at 9:00 pm