What's the Risk of Inflation With 9.7 Percent Unemployment?

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Wednesday, 09 June 2010 04:18

The NYT discussed the likely path of fiscal and monetary policy. It noted that it was unlikely that the Fed would adopt a substantially more expansive path concluding with a quote from an economist: "A second round of quantitative easing at the moment would substantially increase inflationary risks."

It is worth noting that there is no economic theory that shows quantitative easing (the Fed buying long-term bonds) leads to inflation when the unemployment rate is far above normal levels, as is the case at present.