Federal Reserve officials have expressed concern in recent weeks that inflation remains stubbornly below its 2 percent target. But they have it all wrong, says Peter Schiff, CEO of Euro Pacific Capital.
The personal consumption expenditures price index, the Fed's favored inflation gauge, rose only 1.4 percent in the 12 months through October.
"Back in the 20th century, the Fed did not consider inflation below 2 percent to be a problem, because it wasn't,"
Schiff writes in a commentary for The Washington Times. "The truth is that when it comes to inflation, the lower the better, no matter how low that rate is."
If low inflation wasn't a problem before, why does it pose such a dire threat now? Schiff asks.
"The answer is that it doesn't. Low inflation, or even deflation, is not a threat to the economy but to the asset bubbles that the Fed has inflated in order to create the illusion of economic growth. Without the Fed creating inflation, the bubbles will burst and the government will be forced to deal with its insolvency," he explains.
"Given that Wall Street economists have a vested interest in downplaying concerns about asset bubbles, it is understandable that the big financial firms have failed to point out the Fed's historic response to low inflation. It is somewhat more troubling to see how the media have completely ignored the past in passing judgment on how the Fed should act today, Schiff notes."
"Economies do better when prices are not rising. In fact, if consumer prices were falling, that's the best possible result for an economy," he tells
CNBC.
Obviously most Fed officials would beg to differ with Schiff. Fed Vice Chairman Stanley Fischer said at a conference Tuesday that if inflation doesn't increase, the central bank must refrain from interest rate hikes,
Reuters reports.
"If inflation is really heading south we will have to do that," he said.
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