A close watch on 'hyper-inflation'
With all the money it's infusing back into the economy, the Fed, Wall Street and others are keeping a close eye on inflation. Steve Chiotakis talks to economics correspondent Chris Farrell about the meaning of "hyper-inflation."
Economics editor Chris Farrell (American Public Media)
More on Chris Farrell's Q & A
TEXT OF INTERVIEW
Steve Chiotakis: The Federal Reserve wrapped up a pretty uneventful two-day policy session. The key interest rate stands at just a hair above zero. But with all the money it's infusing back into the economy, the Fed is keeping a close eye on inflation. So's the Treasury Department and Wall Street and Congress.
Economics correspondent Chris Farrell joins us now. Chris, we're hearing this word "hyper-inflation" in the lexicon. What's that all about?
Chris Farrell: People have different definitions, but it's the worst of the 1970's. So it's double-digit inflation. And there're just concerns because the Fed has been pumping the system full of money to try and turn this economy around. And you know, I just don't see it. In the GDP report that came out this week, we saw that prices are stable. But I have to tell you something: now we have to make a little bit of a side tour here, but I just have to highlight a report that came out this week, Steve, because I still think it's an amazing number. So the Fed Funds Rate, right, the benchmark interest rate is somewhere between zero and a 0.25 percent. I think it's zero, so let's say it's zero, right? So the ideal, the perfect benchmark interest rate at this particular point in our history should be: -5 percent.
Chiotakis: Minus?
Farrell: Minus. Now --
Chiotakis: How do you go there? Does that mean they start giving you money back?
Farrell: Well, I would hope so. It's pretty hard to get a negative interest rate, it's pretty hard to get interest rates below zero. But this is a very well-respected measure, it's called the Taylor Rule. OK, we're not going to get -5 percent interest rates -- you just can't do it, it's mind-boggling. But it does support the efforts by the Fed to be buying long-term Treasuries, to be buying debt, sort of to be doing all these extraordinary actions that they have been taking. And by the way, that's going to be a big part of the discussion that they've had this week of continuing those extraordinary actions.
Chiotakis: All right. Our economics correspondent, Chris Farrell joining us this morning. Chris, thank you.
Farrell: Thanks a lot.
Comments
Comment | Refresh
From Erlanger, KY, 04/30/2009
thanks for citing
http://www.economicpopulist.org/?q=content/internal-federal-reserve-study-concludes-fed-should-create-5-interest-rate
or is there a more primary source?
Fed Analysis may have been prompted by my direct contact with Fed TARP program deputy on 2009 Jan 30. My article at
http://NCAD.net/NIRP.htm
was prompted by 2009 01 26 NYTimes op-ed by Paul Krugman http://www.nytimes.com/2009/01/26/opinion/26krugman.html?_r=2&th&emc=th
Post a Comment: Please be civil, brief and relevant.
Email addresses are never displayed, but they are required to confirm your comments. All comments are moderated. Marketplace reserves the right to edit any comments on this site and to read them on the air if they are extra-interesting. Please read the Comment Guidelines before posting.
You must be 13 or over to submit information to American Public Media. The information entered into this form will not be used to send unsolicited email and will not be sold to a third party. For more information see Terms and Conditions and Privacy Policy.