NO inflation–at least for now

The Fed’s number one enemy, inflation, isn’t a worry. At least for now. They’ve turned the economic throttle to full to get us out of our BIG recession. Short term interest rates are near zero, and they’re also increasing the supply of money.

This is like flooring the gas pedal on a muscle car–things are going to happen but it may be a little hard to control. The long term effects of lots of cheap money sloshing around will be inflation. However, the short term worry seems to be deflation.

The Fed has done all it can with the cost of short term money by ratcheting rates down to zero. It is also tinkering with the quantity of money in the financial system, namely increasing it. Both actions should stimulate the economy, and in turn help house prices to eventually rise.

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