According to the Times, U.S. inflation hit a 27 year high in June:
Inflation jumped by 0.8 per cent in the month of June, the most since February 1981, when prices rose by 1.0 per cent, according to the Commerce Department.
Bloomberg reports today that while the Fed will likely keep interest rates unchanged for now, Bernanke is facing a dissenting block of 3 governors who are arguing for more action against inflation.
The fastest inflation in 17 years adds to the risk that three members of the Federal Open Market Committee will dissent for the first time since 1992. Gary Stern, president of the Fed’s Minneapolis bank, and the Philadelphia Fed’s Charles Plosser joined Dallas’s Richard Fisher since the last meeting in June in calling for an increase in rates to limit price increases.
The trio wield more clout than usual because two seats assigned to Fed governors on the 12-member panel are currently vacant.
According to the article, this may result in Bernanke talking tougher about inflation in his official statements.
Personally, I’m a little skeptical that this means much. Talk is cheap. Even Fed-speak. Bernanke has talked tough about inflation ever since he assumed the chairmanship. Yet he has allowed inflation to rise to the current stunning levels. Inflation, even core inflation that excludes food and energy (i.e. the things that have been rising the most in recent years), has consistently exceeded Bernanke’s stated targets, but his actions have been few. While admittedly he is in a tough position right now, his actions in the past year have demonstrated that when push comes to shove, he is willing to sacrifice inflation to pursue other goals, all the while paying lip service to being an inflation hawk.
Furthermore, while 3 governors openly dissenting may have been rare during Greenspan’s term, Bernanke is apparently genuinely interested in fostering open discussion among the governors. From Bloomberg:
Bernanke may be willing to accommodate dissent. Bernanke has praised the Bank of England, whose chief, Mervyn King, has been outvoted twice on rates, as a “leading exponent of increased transparency.”
Bernanke has also opened up FOMC meetings to allow officials to speak out of turn during debates. That means the sessions may resemble the frank exchange of conflicting views common to Bernanke’s discussions during 23 years as an economics professor, said Edward McKelvey, a senior U.S. economist at Goldman Sachs Group Inc.
In 20 FOMC interest-rate decisions as chairman, Bernanke has recorded nine with one dissenting vote and two with a pair of `nays.’ His predecessor, Alan Greenspan, had 17 decisions with one or two dissents in his last 10 years as Fed chief.
Thus, having 3 governors dissenting may not be indicative of all that much more dissent than usual. For any professional Fed-watchers out there: does this really mean there is true dissension in the ranks that might actually force action on inflation that is rapidly approaching the ’70s era we all have nightmares about? Or is this another good P.R. move to appease the inflation hawks with empty words while pursuing other goals?