The Dwindling Value of a Dollar
By James Freeman
The Federal Reserve is still engaged in a historic frenzy of dollar creation and, perhaps not surprisingly, each one of our existing dollars is still losing value. Will Fed officials continue finding reasons to believe that inflation is not a problem—or will they resolve to stop creating it? …Karen Petrou, managing partner of Federal Financial Analytics, notes in the New York Times that the ocean of money from the Fed is most useful to people who already own lots of assets: Low interest rates set by the Fed spur lending, creating more demand to purchase homes and forcing prices higher. Rising equity is great for existing homeowners, but richer Americans who own property are the ones who benefit most. Perhaps the rise in housing prices, like the price spikes of so many other goods, is merely transitory. A recent paper from economists at the San Francisco Fed argues that consumers aren’t as sensitive to increases in commodity prices as they used to be, in part because “the conduct of monetary policy has changed significantly since the 1970s and 1980s. The Federal Reserve’s increased focus on price stability and its success in keeping inflation low have improved the credibility of its policies. As a result, inflation expectations have declined steadily over time and remain well anchored at a low level”.