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26 Apr 2013
Forex Flash: Easy in, Easy out - BAML
FXstreet.com (Barcelona) - Bank of America Merrill Lynch analyst Ethan S. Harris notes that one of the key themes in recent months is that inflation is undershooting the targets for the Fed and other central banks.
He writes, “We first raised this issue in a forceful way in a February and pointed to the fading global and domestic pressure and concluded that “despite the dire warnings [of QE critics], we believe there is a greater risk of unwanted disinflation than of unwanted inflation.” We followed this up arguing that “if inflation continues to fall short of the Fed’s target, and the economy falters, the Fed could top up QE before it tapers.”” More recently, he notes that Fed officials, including some notable hawks, have caught on to the disinflation risks.
He adds that Richmond President Lacker reiterated his call for ending QE, but acknowledged that “If I thought [inflation] was going to persist this low or even fall further, I’d of course be giving serious thought to providing monetary stimulus to get the inflation rate back to 2” percent. On a similar note, he comments that Minneapolis President Kocherlakota argued for guarding the inflation target “from below” and St Louis President Bullard said “we should defend the inflation target from the low side.” Harris finished by noting that it is important to underscore the powerful impact of low inflation on Fed policy. he writes, “Hawks and doves on the Fed strongly disagree about many things. They disagree on the efficacy of QE. They have different views on the long-run sustainable.”
He writes, “We first raised this issue in a forceful way in a February and pointed to the fading global and domestic pressure and concluded that “despite the dire warnings [of QE critics], we believe there is a greater risk of unwanted disinflation than of unwanted inflation.” We followed this up arguing that “if inflation continues to fall short of the Fed’s target, and the economy falters, the Fed could top up QE before it tapers.”” More recently, he notes that Fed officials, including some notable hawks, have caught on to the disinflation risks.
He adds that Richmond President Lacker reiterated his call for ending QE, but acknowledged that “If I thought [inflation] was going to persist this low or even fall further, I’d of course be giving serious thought to providing monetary stimulus to get the inflation rate back to 2” percent. On a similar note, he comments that Minneapolis President Kocherlakota argued for guarding the inflation target “from below” and St Louis President Bullard said “we should defend the inflation target from the low side.” Harris finished by noting that it is important to underscore the powerful impact of low inflation on Fed policy. he writes, “Hawks and doves on the Fed strongly disagree about many things. They disagree on the efficacy of QE. They have different views on the long-run sustainable.”