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However, Brinker began to "praise" Bernanke and the Federal Reserve when they supposedly stopped focusing on inflation and began cutting interest rates to stimulate the economy. March 31, 2008, Brinker said:
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“I think that the Fed members were caught up in an ivory tower with the doors locked for awhile, and they certainly have come down from the ivory tower now. But for a long, long time, I think they were holding rates artificially high. Given what was going on in the credit markets even as early as last summer."
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Well, it looks like the Fed's inflation watch is back on again. Wednesday, June 4, 2008:
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CAMBRIDGE, Massachusetts (Reuters) - Federal Reserve Chairman Ben Bernanke said policy-makers were concerned by signs of rising long-term inflation expectations but did not see a dangerous wage-price inflation spiral developing.
"Some indicators of longer-term inflation expectations have risen in recent months, which is a significant concern for the Federal Reserve," Bernanke said in a speech to graduating students at Harvard University.
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"We will need to monitor that situation closely," he said, but added there was little sign a "1970s-style wage-price spiral, in which wages and prices chased each other ever upward", might be starting.......
Full Reuter's Article
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Here are some excerpts of some of Bob Brinker's recent comments about the Fed, Bernanke and inflation. April 3, 2008, Bob Brinker said:
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“Well, if you’ve been listening to Moneytalk for a while, you know full well that I’ve maintained that this business about run-away inflation is total nonsense. This business about pre-occupation with high inflation is total nonsense. We have said over and over on a consistent on-going basis that the problem is not inflation. And as has been the case, we’ve received more good news on inflation this past week. The most important gauge of inflation, according to the Federal Open Market Committee, is an index known as the Chain Price Index for Personal Consumption Expenditures. I usually refer to this on the program as the Personal Consumption Expenditure Price Index. And this index came through this week showing some really outstanding numbers showing that inflation is decreasing. The year-over-year rate of inflation on the Index came in at 3.4, in the latest data. And the year-over-year core index – excluding food and energy – came in at 2%.
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Now you’ll remember that the inflation hawks told us last year that because oil prices were going up, that was going to feed into the overall rate of inflation and cause higher inflation..........That’s what they told us. That’s not what happened. Oil prices went up.......... They are up over 19% over the past year. They’re up over $100 a barrel for crude oil, but so what..........Even though oil prices are very, very high, we continue to see a situation where inflation is low.
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Now if you are a Moneytalk listener, you know that I was really critical, even though being critical is not in my nature, any Moneytalk listener knows that. Rarely, if ever have I been critical. But you may recall that I have been critical in the past year on some of the Federal Reserve officials who’ve been out there talking up inflation..........I do understand that some of the Federal Reserve members made a mistake. And the mistake that they made was that they equated high oil prices with inflation. Now we’ve seen – the proof is in the pudding – look at the numbers. Inflation in the last 52 weeks, 3.4 – core inflation 2.0, energy 19. So obviously, equating inflation to energy prices is a fool’s errand. And I think there were some – I don’t want to embarrass them, so I’m not going to name them..........in the Federal Reserve that made this error, thinking that higher oil prices equaled higher inflation. As we explained on our broadcast many times, the reason that is false logic is because consumers get strained when energy prices go up..........it makes it more difficult for them to spend money on other things.
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As a result you do not get demand-pull inflation. By the way, you don’t get demand-pull inflation in an economy like this one anyway..........Gross Domestic Product adjusted for inflation in the 4th quarter increased at an annual rate of only 0.6%..........And here in the 1st quarter, it’s going to be flat to down. And the second quarter looks dicey also, depending on how the stimulus package plays in..........Well, the only other kind of inflation there is isn’t happening either – and that is cost-push inflation..........We are not getting cost-push inflation because it’s impossible for sellers to command sharply higher prices for their goods in an economy that is in the state that this economy is in, which is in the doldrums. You can’t push your prices ever higher when consumers are counting their consumer discretionary income dollars after they leave the gas station or pay their heating oil bill...........You just have to price in a competitive way. So you don’t get cost-push inflation -- even with the weak dollar which could have provided an umbrella for domestic producers to raise prices, given the fact that foreign were coming in with upward price pressure because of the lower dollar. But the reality is that they couldn’t do it..........The domestic producers couldn’t push through big price hikes, and even the companies importing products into the United States had to take a hit on their profit margins because they just don’t have the pricing flexibility in an economy that’s dead in the water like the one that we’ve been looking at here really since the 4th quarter.
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So the bottom line on all of this, if you’re not going to get demand-pull inflation, if you’re not going to get cost-push inflation, that’s the reason that we have been right here on the program discussing inflation for so long. How did it turn out that so many people, including members of the Federal Reserve, were wrong when they said higher oil prices would create an inflation problem? How is it that here on Moneytalk, we were able to correctly assess the situation by saying over and over again that this is not inflationary. In fact, it’s contractionary..........That’s what it’s all about. This is Moneytalk.........."
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