Inflation and the Fed: A Follow-Up

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Ryan Cooper suggests that we don’t really know if the Fed can significantly raise inflation:

Here’s the thing: this is pretty much what the Bank of Japan has been doing for the past few years. The chart on the right shows QE in Japan compared to the US over the past six years (indexed to 100 at the end of the Great Recession). The BOJ balance sheet has more than quadrupled since then, and the inflation rate in Japan is….

-0.4 percent.

Since this hasn’t worked—and since doubling the Fed’s balance sheet in 2013 has produced declining inflation—it seems likely the Fed would have to increase its balance sheet by, say, 8x, to have any chance of producing substantially higher inflation. In dollars, that means $28 trillion in additional asset purchases. They would run out of treasuries to buy long before they hit that mark and would start gobbling up every corporate and MBS bond in sight. That’s really not a tenable suggestion.

This is all just back-of-the-envelope stuff, not meant to be taken too literally. For one thing, we’re starting off with a higher inflation rate than Japan did. Still, this gives you a rough idea of what the Fed is up against. In theory, they can do endless helicopter drops until they get the inflation they want. In practice, it’s a lot less clear they truly have a plausible path to 3 or 4 percent inflation.

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And right now, we need to raise about $400,000 from our online readers over the next two months to hit our annual goal and make good on that mission. Read more about the information war we find ourselves in and how people-powered, independent reporting can and must rise to the challenge—and please support our team's truth-telling journalism with a donation if you can right now.

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