325_Supplement14 - Department of Economics University of...

Intermediate Macroeconomic Analysis Spring 2011
1
Department of Economics University of Maryland
Economics 325
Intermediate Macroeconomic Analysis
Supplement 14
Professor Sanjay Chugh
Spring 2011
The following article appeared in the Wall Street Journal on April 12, 2011. It describes
and analyzes the most recent views shared publicly by Federal Reserve officials about the
possible inflationary consequences of various developments around the world, including
the recent interest rate hike by the European Central Bank (the counterpart of the Federal
Reserve in the euro-zone economies), recent surges in oil and gas prices, and the
macroeconomic consequences of geopolitical events such as unrest in the Mideast and
Japan’s earthquake.

Intermediate Macroeconomic Analysis Spring 2011
2
ECONOMY
APRIL 12, 2011
Fed Plays Down Inflation
Speeches Signal U.S. to Keep Credit Cheap as Others Tighten
By JON HILSENRATH
Top Federal Reserve officials sent a clear signal that the Fed is unlikely to follow the
European Central Bank in lifting interest rates from rock-bottom levels anytime soon,
playing down the idea that soaring commodity prices will lead to broader U.S. inflation.
Recent increases in prices of oil, grain and other commodities are "unlikely to have
persistent effects on consumer inflation or to derail the economic recovery" and are "not
likely to warrant any substantial shift in the stance of monetary policy," she said. The
key, Ms. Yellen added, is that households and businesses don't expect inflation to take
off in the long run.
Speaking in Tokyo earlier, William Dudley, president of the Federal Reserve Bank of
New York, said, "We think that it's important not to overreact to a rise in headline
inflation because the increase in commodity prices is probably going to be temporary
rather than persistent"—a sentiment Ms. Yellen echoed.