NCPA - National Center for Policy Analysis


March 25, 2010

Bob McTeer, former president of the Federal Reserve Bank of Dallas and distinguished fellow at the National Center for Policy Analysis, doesn't expect a breakout of inflation any time soon in the United States.  The main reason, says McTeer, is the moderate growth in the money supply that has accompanied the expansion of budget deficits. 

Other reasons include:

  • The depth of the recession and the continued slack in the economy evidenced by the low employment growth and the low capacity utilization rate.
  • The downward pressure on labor costs of the rapid expansion in productivity since the middle of 2009.

Some people on the other side of this argument might claim that an acceleration of inflation is inevitable because it has already started.  They point to elevated oil and gold prices and to some price indexes.  A look at the producer price index puts that into perspective, however.  The principle mitigating factor is that year-over-year increases lately have been from year-ago levels that were significantly negative.  In other words, the deflation that we had earlier is being offset, leaving the two-year rate much flatter, says McTeer.

Source: Bob McTeer, "Why Inflation Worries Are Overblown,", March 23, 2010

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