Salient to Investors:

Kenneth Rogoff at Harvard said:

  • Janet Yellen and Lawrence Summers qualify to replace Bernanke because of their dovishness about placing too much weight on stable inflation when unemployment is far above its longer-run level.
  • Aggressive monetary stimulus is needed, even at the cost of moderate price increases, because with weak global inflation, higher prices may even help the US economy by lowering real interest rates and reducing debt burdens.
  • In more normal times, you want the Fed to be an anchor against high inflation and assure investors that inflation will stay low and stable to keep interest rates down.
  • Many central banks need to convince the public of their tolerance for inflation, not their intolerance.
  • There is little stomach at the Fed for more than 2.5 perrcent inflation.

Joseph Stiglitz at Columbia University said policy makers for the next 3 or 4 years will be focused on reviving the economy, and the likelihood that inflation is going to be a problem is very small.

Ethan Harris at Bank of America said the Fed won’t risk allowing medium-term inflation to deviate above 2.5 percent, even under Summers or Yellen. Harris said once you accept higher inflation, it becomes a slippery slope and eventually you get inflation that hurts the economy – viz 10+ percent inflation in the 1970s and 1980s .

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