I made my displeasure known last week about the Pause/Resume scenario. A friend takes a slightly different tack, explaining that Fed Chair Bernanke’s inflation targeting is even worse than my criticism implies.
Why? As I explained in the Folly of Forecasting, predicting the future is something we Humans are particularly bad at. And that’s what inflation targeting requires: getting the projected inflation rate right.
Which raises the question as to whether "Gentle Ben" might be better at it than "Easy Al." Don’t bet on it; here’s what Beranke said in January 2004 about Oil and Gold:
"Two specific commodity prices that often command attention are the prices of
gold and crude petroleum. The price of gold has increased roughly 60 percent
since its low in April 2001, from about $255 per ounce to about $410 per ounce.
A portion of that increase simply reflects dollar depreciation, which I will
discuss momentarily. Gold also represents a safe haven investment, however, and
I agree that there have been periods in the past when the fear that drove
investors into gold was the fear of inflation. But gold prices also respond to
geopolitical tensions; these tensions have certainly heightened since 2001 and,
in my view, can account for the bulk of the recent increase in the real price of
Oil prices are relatively high, in the range of $33/barrel, but they have
been elevated for most of the past four years, despite a broadly disinflationary
environment. According to futures markets, oil prices are expected to decline
gradually over the next two years, despite accelerating economic activity, as
new supplies are brought on line. Of course, there is considerable uncertainty
about what the price of oil will do, given the possibility of supply
disruptions. But if it follows the course projected by the futures market, the
price of oil should have a modest disinflationary effect on overall consumer
prices in the next couple of years." (emphasis added)
-Ben Bernanke, January 4, 2004
Remind again about the advantages of inflation targetting . . .
Remarks by Governor Ben S. Bernanke
At the Meetings of the American Economic Association, San Diego, California
January 4, 2004
Monetary Policy and the Economic Outlook: 2004