A pickup in inflation is a growing threat to the U.S. economy and poses new challenges to Federal Reserve policy makers, said economists Vincent Reinhart and Allan Meltzer.
“For the first time in a while, the Fed can see risks on both sides” -- inflation and economic growth, Reinhardt, a former adviser to Fed Chairmen Ben S. Bernanke and to his predecessor Alan Greenspan, said today on Bloomberg Television’s “Surveillance Midday” with Tom Keene.
Reinhart said the Fed should reduce its purchases of U.S. Treasury securities as it gauges the extent of price increases.
“If you see risk on both sides, then maybe you should go a little slower,” he said. “I think they should cut the monthly purchases to $25 billion,” about a third of the current $75 billion pace.
Meltzer, who has written a two-volume history of the central bank, said “inflation is coming.” Although price increases are currently “buried,” Meltzer said inflation “will come out as soon as housing prices stop falling.”
Meltzer is a professor of political economy at Carnegie Mellon University in Pittsburgh, and Reinhart is a resident scholar at the American Enterprise Institute in Washington.