The Fed's Inflation Hunt May Stumble on Zombies
Ultra-low interest rates can have the depressive effect of keeping weak companies alive and impeding creative destruction.
I see falling prices.
Photographer: Sean Gallup/Getty Images
The Fed really wants to create some more inflation, and this week they are going to tell us a little more about how they intend to do it. But what are its chances, and where exactly is that inflation to be found? I will be taking part in a live discussion on the terminal Wednesday, in the quiet hours before the Federal Open Market Committee meeting, with Robin Brooks, chief economist of the Institute of International Finance, our Europe-based investment strategist Laura Cooper, and my cross-asset colleague Kriti Gupta. I hope you’ll join in at TLIV when we’ll try to get to the bottom of this. For now, I am going to frame the discussion.
First of all, nobody thinks a return to significant inflation is imminent, and nobody doubts that product prices have been under control for a while. This is the Federal Reserve’s preferred measure of inflation, the Core PCE Deflator, going back 50 years: