Everyone Is Concerned About Inflation Except Don Kohn
Now that former SF Fed President Janet Yellen has taken over as Bernanke's #2, Don Kohn doesn't need to concern himself with things like exit strategies and inflation, that's for the Fed to worry about.
Instead, he's got time to chat with the WSJ about his nonexistent concerns as well as the Fed's nonexistent exit strategy, safely distanced from the fallout once the dominoes fall. Oh and they will. It may not be tomorrow and it may not be next week but they will.
Here's what he said:
And the risk of higher inflation down the road?
A lot of investors seem concerned. I’m less concerned because… if anything the forces currently playing on inflation seem to be pushing inflation down for now because of all the slack in the economy. Secondly, because of the very careful preparation the Fed has done and will continue to do to exit its policy when the time is right. The DNA of the FOMC [Federal Open Market Committee] is very focused on preventing a rise in inflation and inflation expectations that would be bad for the economy I’m not worried about inflation getting out of control. Even if [the Fed] waits too long [to raise interest rates] when the time comes, they’ll be very alert and if necessary they’ll tighten up faster than they would have.
We hear about this "slack" all the time but for the uninitiated, "slack" really means excess "money" that isn't really money but credits from the Fed to banks. Of course, you'd think the act of converting the blips from blips to Treasurys (which the banks have been doing for quite some time and why not, since the blips are on loan free from Bernanke?) would thereby put this newly-created money into the system but somehow (maybe by act of God or Saint Greenspan or some such divine intervention) it hasn't hit the air and therefore isn't quite inflationary.
Does Don Kohn actually believe the Fed has an exit strategy? My guess is no but the terms of his exit require - either morally or legally - that he say as much, lest he get Randy Mossed and kicked off the team for saying the wrong thing during the all important post-game.
Y'all feel on me on that, surely.