More Good News from the Fed

The FOMC can now wait a little while, to make sure that the withdrawal of additional stimulus through large-scale asset purchases does not lead to a repeat of the sharp decline in money growth that we saw, previously, in 2010. But, so long current rates of 5 1/2 to 6 percent money growth continue, they will eventually lead to inflation rates that meet or exceed the Fed’s long-run target. To prevent such overshooting, the FOMC will probably have to start raising rates, as most of its members currently anticipate, sometime towards the middle of next year.