KRUGMAN: They've Done It Again--The Inflationistas Have Emasculated Bernanke And Now QE2 Is Much Too Small

Paul Krugman Leonard Lopate

Paul Krugman thinks it’s deja-vu all over again.

The inflationistas and tea-partiers have been screaming so loudly about the horrors of QE2 that they’ve scared Ben Bernanke into being a wimp.

And now, like Obama’s before him, Bernanke’s stimulus is way too small to make a difference.  So unemployment will go on and on…

Reasonable estimates suggest that the Fed’s new policy is unlikely to reduce interest rates enough to make more than a modest dent in unemployment. The only way the Fed might accomplish more is by changing expectations — specifically, by leading people to believe that we will have somewhat above-normal inflation over the next few years, which would reduce the incentive to sit on cash.

The idea that higher inflation might help isn’t outlandish; it has been raised by many economists, some regional Fed presidents and the International Monetary Fund. But in the same remarks in which he defended his new policy, Mr. Bernanke — clearly trying to appease the inflationistas — vowed not to change the Fed’s price target: “I have rejected any notion that we are going to try to raise inflation to a super-normal level in order to have effects on the economy.”

And there goes the best hope that the Fed’s plan might actually work.

Read the whole thing >

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.