Tuesday, April 20, 2004

The Money Game: Stephen Green had an interesting post a couple of days ago regarding commodity prices as a barometer for inflationary pressure. My question is, what would you do if you were sitting in Alan Greenspan's chair? Do you keep interest rates low to keep from smothering the recovery in its cradle, and just hope that inflation doesn't get out of control? Or do you start ticking up interest rates and hope that the growth momentum of the last several quarters (which has, after all, been very strong) will withstand a little belt-tightening?

One of my big hobbyhorses on this blog, at least economically, is the business cycle and the vacation it took in the 90s. In other words, the combination of ridiculously low unemployment and ridiculously low inflation (plus a booming stock market) was an anomaly. Growth, especially with strong employment, tends to be inflationary. So, just as we may be seeing the return of historically normal "full" employment figures, are we going to see the return of inflation?

I'm not certain, but I think I'd stand pat on interest rates right now.


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