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Heller Says Fed’s ‘Too Little’ Inflation Concern Is Misplaced

Sept. 22 (Bloomberg) -- Former Federal Reserve Governor Robert Heller said the central bank’s concern that inflation is too low is misplaced.

“Gold prices are up, commodity prices are up and the Fed is concerned about too little inflation,” Heller said today in an interview on Bloomberg Radio’s “The Hays Advantage” with Kathleen Hays. “There’s a lot of inflation, as far as I can see, in the pipeline.”

The Federal Open Market Committee, the central bank’s policy-setting panel, yesterday said it’s willing to ease monetary policy further to spur growth and support prices. The panel also voted to maintain a benchmark interest rate target of near zero.

In trading today, the December gold futures contract rose to a record $1,298 an ounce following the Fed’s decision.

“The Federal Reserve is very much focused on the short-term, the here and now, the slack in the economy,” said Heller, who served on the Fed board from 1986 to 1989. “The Fed is concerned about too-low inflation. Ninety-nine percent of the time you hear the Fed being concerned about too-high inflation.”

Heller said much of the Fed’s focus lies on housing, the industry that triggered the recession, the deepest economic contraction since the 1930s.

“The Federal Reserve is looking very much at what is happening right now in the inflation data,” Heller said. “About one-third of the consumer price index is dominated by the costs of rents, the cost of housing. That is the one sector in the U.S. economy that is most depressed. We see housing prices continue to fall because of the overbuilding.”

(In the U.S., hear Bloomberg Radio on satellite radio: Sirius Channel 130 and XM Channel 129. In New York City, tune to WBBR 1130 on the AM dial.)

To contact the reporters on this story: Vincent Del Giudice in Washington vdelgiudice@bloomberg.net; Kathleen Hays in New York Khays4@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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