The Oh Oh Economic Report

Hoenig Says Inflation `Serious,' May Prompt Rate Rise (Update1)

``There is a significant risk that higher inflation will become embedded in the economy and require significant monetary policy tightening to reduce it,'' Hoenig said yesterday in the prepared text of a speech in Denver.

Oh oh. We already have serious monetary policy tightening in place to tame higher inflation though. Whew! Just look at the 0% I-Bond rate. You can't lose! Well, you can lose (you are taxed on your "gain"). Okay, you will lose. But you will lose a known amount (a "known evil")! That's something these days (compared to today's "unknown evil" stock market drop anyway).

In any event, we're fine as long as consumers don't gain a 1970s style inflation psychology. So why worry?

Consumers are gaining an ``inflation psychology to an extent that I have not seen since the 1970s and early 1980s,'' he said.

Oh oh. It isn't stagflationary unless we actually see sharply slower growth, an economy at the brink of a recession, rising commodity prices, and/or inflation pressures rising considerably though. What are the odds of that happening in a Goldilocks economy? It isn't like I've been hoarding much lately. (Truth be known, I've been running out of ideas of "cheap" things to hoard.)

``A sharp slowdown in growth has put the economy at the brink of a recession while, at the same time, rising commodity prices have caused inflation pressures to rise considerably,'' Hoenig said to the Economic Club of Colorado. He isn't a voting member of the Federal Open Market Committee this year.

Oh oh. Look, it isn't all bad. We're fine as long as we aren't consuming more than we're producing. Right?

``Our economy is consuming more than it is producing,'' Hoenig said.

Oh oh. Perhaps the powers that be will continue to do things we don't find desperately unpopular though. You know, like tax rebate checks, gasoline tax holidays, and what not.

``There are many challenges ahead, many choices to make,'' he said. ``Some I suspect will be desperately unpopular.''

Oh oh.