Economists: Fed's actions could cause inflation
The National Association of Business Economists has a number of members who are worried about inflation, according to a new survey of its economists. The poll shows "Half of the economists do not believe the quantitative easing actions of the Fed will be inflationary over the next couple of years while 41 percent think they will."
The reason for concern is simple. The Fed has put too much money into the markets some experts say, and when the economy recovers, this liquidity will cause too much money to chase too few assets.
The theory has its strengths, but among its weaknesses is that unemployment may stay high for years, and demand for consumer goods, the consumer spending that makes up 70 percent of GDP, may not return to the market strongly for years. Fed money and the Administration's $787 billion stimulus package can only cause inflation if they work well. So far, they haven't.
In some ways inflation might be a nice problem to have, at least in certain sectors of the economy. It could help raise housing prices. It could help increase wages. But, if could also increase the costs of goods and services at a rapid rate, which would ultimately undermine consumer buying power.
The dangers of inflation look bad on paper, but if the economic recovery is slow and "jobless," the paper dangers aren't real.
Douglas A. McIntyre is an editor at 24/7 Wall St.