What type of inflation process does John Cochrane warn could happen? Explain the role that inflation expectations

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What type of inflation process does John Cochrane warn could happen? Explain the role that inflation expectations would play if the outbreak of inflation were to “happen with little warning.”

Economist John H. Cochrane thinks the Fed must be careful not to over-stimulate the economy. He thinks inflation remains a danger because U.S. debt is skyrocketing, with no visible plan to pay it back. For the moment, foreigners are buying that debt. But they are buying out of fear that their governments are worse. They are short-term investors, waiting out the storm, not long-term investors confident that the United States will pay back its debts. If their fear passes, or they decide some other haven is safer, the Fed must watch out. For in that situation, inflation will come with a vengeance. It’s not happening yet: Interest rates are low now. But if inflation takes off, it will happen with little warning, the Fed will be powerless to stop it, and it will bring stagnation rather than prosperity.

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Macroeconomics

ISBN: 978-0134853307

10th Edition

Authors: Michael Parkin

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