TIPS Suggests Inflation to Come

TIPS Suggests Inflation to Come

According to the 5yr5yr, the bet is that inflation will make a visit upon us soon.

That was in yesterday’s WSJ, in today’s WSJ, more to worry about, especially in terms of the Fed’s inability to control inflationary pressures–even though that is one of its charges.  Snip:

Normally, banks’ principal business is lending, and the interest rate they can get on their loans is more important than the interest they might get on their reserves. Once borrowing resumes, banks will increase loans and expand deposits. The current massive volume of excess reserves will melt into a greater money supply, and later higher inflation.

When will inflation start? The date is uncertain. But the triggering event will be either a sustained increase in bank lending or a large increase in Fed purchases of government debt. Perhaps both. Either one would trigger a sustained increase in money growth.

With the exception of the early years after Paul Volcker became Fed chairman in 1979, the Fed has paid no attention to money growth. There have always been some Fed bank presidents concerned about too much or too little money growth, but they have not affected decisions. That problem remains.