Much wailing and gnashing of teeth about the blogosphere over the Fed’s June minutes. Paul Krugman says it succinctly:


I have no idea why Fed presidents expect core inflation to rise over the next two years. Historically, high unemployment has been associated with falling, not rising inflation. In fact, my bet is that we will be near or into deflation by 2012.

But even given the Fed’s own projections, it’s not doing its job, it’s missing its targets. Yet it apparently sees no need to act.

Well, Paul unless I am misremembering how the Fed constructs these forecasts its actually worse than that. These forecasts are generated assuming optimal monetary policy. So the Fed is saying even if it acts in the best possible way it still expects to miss it targets well into 2012.

That’s ignoring the fact that its 2010 – to late to influence – inflation numbers still look a bit rosy to me.

The Fed is literally planning to fail. This is not good. Not good at all.