Monday, April 5, 2010

The Fed's Dudley and Yellen seem to be reading the bearish bloggers

But inside the Fed, an influential band of policy makers is fretting over the opposite: that the already-low rate of inflation is slowing further.

The presidents of the New York and San Francisco regional Fed banks, William Dudley and Janet Yellen, see the abating inflation rate as convincing evidence the economy still is burdened by excess capacity and needs to be sustained by the Fed....

This intensifying internal Fed debate over the behavior of inflation comes as the central bank plots an exit from an unprecedented experiment in easy money. Its read on inflation will influence how quickly it moves to raise short-term interest rates—which impacts everything from mortgage rates to new business costs to stock performance—and drain huge sums it pumped into the financial system during the recession. Recent developments have given the inflation-rate-is-dropping camp an upper hand.

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