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  • Evans: Temporary Rise in Inflation to 3% Wouldn't Be Problem

Added at 10:05am
when is it a problem? i didnt know inflation was problem. just raise the rates if the market is hot.
"Temporary rise to *random_number_here*% won't be a problem"

Why? Because it will be temporary. But, how can they be so confident they can put the genie back in the bottle?

We now live in a world where unprecedented volumes of cash is chasing risk to avoid inflationary erosion. How will communicating to the world that the Fed will not flinch change this? They are even hoping that external factors may help them (tax rises). The smallest deviation in the future (e.g. another Black Swan event) and either there will be a run on the USD or rates will have to hit a level that will force mass deleveraging and widespread toxic assets (non performing loans).

For example, what happens if tensions built with China to the point that China dumps US treasury holdings? Instant check mate and ruin of the ever so complacent Fed+UST.

This has become very much like watching a slow car crash unfold.
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Any use of "would" or should" from "experts" is such a confidence builder.
How they can sure it will be "temporary"? What happen if it will be "permanent"? We will see the suddenly a big number of the raise interest rate, and all financial market will rocknroll....
the raising costs already passed on to the end products, how could it be "temporary"? Would it be priced down when the "transitory" is over?
Inflation combined with a zero rate environment over a decade is nothing else than a heavy tax on those sane and productive people who provided stability to hold the system together by avoiding going more and more into risk. They all look stupid and have lost a lot since 2009 instead of being paid for their insurence they provide.

2% inflation is not price stability. Only an 10 years average of 0% would be. It's an absolute joke to think people would limit their spending in a single digit deflation envoirement. 90% of all spend even money they don't have yet on things they don't really need. If you warrant a 0% long term all including inflation target people would invest with far more confidence and this would overcompensate any fear linked to a forced 2% inflation target by monetary expansion and devaluation. They save even more to compensate for what they lose through artificial inflation.

It has to stop before it blows up the whole financial system. Those who took the risk have to carry the fallout when sanity returns.
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