Friday, June 16, 2006

Krugman: Housing Slowdown and Inflation

by Bill McBride on 6/16/2006 01:30:00 PM

Paul Krugman writes: The Phantom Menace (NYTimes pay)

"It would be an exaggeration to say that there's no inflation threat at all. I can think of ways in which inflation could become a problem. But it's much easier to think of ways in which the Federal Reserve, wrongly focused on the phantom menace of a new wage-price spiral, could be slow to respond to bigger threats, like a rapidly deflating housing bubble."
So far the housing bubble is not deflating rapidly. But I do think a housing slowdown is a greater threat to the economy than inflation.

Krugman writes:
So I don't fear inflation nearly as much as I fear the fear of inflation. And I wish the Fed would lighten up on the subject.
But by talking about inflation, perhaps the Fed can lessen the fear of inflation. So I think the Fed is correct to talk openly about inflation concerns.

For excerpts of Dr. Krugman's column, see Economist's View.

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