Whatever Happened To Inflation?
” Since 2008, the Federal Reserve has been trying to stave off economic disaster with an unconventional monetary policy tool known as quantitative easing. By buying financial assets from commercial banks and other institutions, the Fed has massively expanded the money supply-quadrupling it since the practice began.
Many economists, particularly followers of the Austrian school, deplored the practice and predicted that the unprecedented currency and asset price manipulation would lead to huge and damaging price inflation. Reason was among them, declaring on our October 2009 cover: “Inflation Returns!” A group of free market economists were asked: “Has the time come to stockpile canned goods and pick up a wheelbarrow for transporting currency, or should we be afraid of the opposite-a prolonged contraction that causes prices to crash?”
Six years later, official consumer price index inflation sits at just 2 percent annually from July 2013 to July 2014, the latest period for which figures are available. This is identical to the rate for the previous year.
We asked four economists and market analysts to revisit what they originally predicted would happen after quantitative easing and assess whether (and why) they were right. Analyst Peter Schiff sticks to his guns, saying that any “claims of victory over inflation are premature and inaccurate. Inflation is easy to see in our current economy, if you make a genuine attempt to measure it.” Economist Robert Murphy believes we are in a “calm before the storm” and is “confident that a day of price inflation reckoning looms.” Contributing Editor David R. Henderson writes that the “financial crisis has brought such major changes in central banking that uncontrolled inflation from discretionary monetary policy is not as great a danger as it once was,” though he remains critical of the Fed’s growing powers. And economist Scott Sumner claims victory for the “market monetarists,” noting that both Austrians and Keynesians have been proven wrong by events, and urging both sides to “take markets seriously.” “
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