Thursday, June 29, 2006

Interest rates up on inflation 'fears'?

In an op-ed a few weeks ago Krugman wrote

"Bear in mind that many economists, including Ben Bernanke, the Federal Reserve chairman, have said that a little bit of inflation — say, 2 percent a year on average — is actually good for the economy.

It would be an exaggeration to say that there’s no inflation threat at all. I can think of ways in which inflation could become a problem. But it’s much easier to think of ways in which the Federal Reserve, wrongly focused on the phantom menace of a new wage-price spiral, could be slow to respond to bigger threats, like a rapidly deflating housing bubble.

So I don’t fear inflation nearly as much as I fear the fear of inflation. And I wish the Fed would lighten up on the subject."

Well, the fed didn't exactly lighten up. Instead, it pushed rates their highest level in more than 5 years.

With already declining (or bottomed out) consumer confidence, does this really strike you as a good move? The nation has borrowed too much already, and upping the burden on that (especially when you look at where that burden falls) does not seem like that good of an idea, as far as general prosperity goes, for the next few years.

In fact, I'm feeling like prospects look pretty grim. Probably a bit like alot of the rest of America (luckily for me, however, I am insulated from any repurcussions by a ludicrously high minimum wage (and thus higher wage levels in general here in Washington), parents, and being in college)


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