Elevated inflation expectations are unacceptable to a mainstream Central Banker, and Bernanke seems to be clearly telling us we’ve reached his limits.
To get ahead of the ‘inflation curve’ will mean interest rates of at least the 5.25% level of last August, when the FOMC didn’t cut because inflation was deemed too high.
While GDP growth is lower now, inflation is a lot higher now. And while GDP was higher then, their forecast for growth had been deteriorating through year end, and now it’s both above expectations and improving.
“The latest round of increases in energy prices has added to the upside risks to inflation and inflation expectations,” Bernanke said in remarks prepared for delivery to a conference organized by the Boston Federal Reserve in Chatham, Mass.
“The Federal Open Market Committee will strongly resist an erosion of longer-term inflation expectations, as an unanchoring of those expectations would be destabilizing for growth as well as for inflation,” Bernanke said.