Save The Economy From Recession&Nbsp; The Federal Reserve Will Tolerate High Inflation

A global Economics It seems that the Great Recession is coming, and with the shadow of European sovereign debt, the global outlook is bleak. In the context of saving the economy and fighting against recession, it has become less important for global central banks to raise interest rates to fight against inflation. Tolerance of high inflation may be a must for global central banks, including the Federal Reserve.

The internal policy makers of the Federal Reserve (Fed) tend to maintain the federal funds rate of 0-0.25% until the inflation rate rises to the 3% level assumed by Vincent Reinhart, the former head of monetary affairs of the Federal Reserve. In addition, although the Bank of England is facing high inflation, and the inflation rate has exceeded the target ceiling of 2% for 21 consecutive months, the Bank still maintains the interest rate at the historical low point, and even some central bank officials call for the resumption of quantitative easing. On August 31, in order to defend economic growth, the Central Bank of Brazil sharply cut interest rates despite the inflation rate soaring to a six-year high.

Faced with the rising risk of a global double recession, policymakers such as Federal Reserve Chairman Bernanke and Bank of England Governor Mervyn King will challenge the Bank's practices and continue to release liquidity to the market to support economic recovery.

Jim Kochan, chief fixed income strategist of Wells Fargo Advantage money market funds, said that global central bank policymakers will tolerate inflation High enterprise, the charm of long-term US treasury bonds may be weakened, but stocks and commodities will be sought after by investors.

Kochan, who is responsible for managing US $215 billion of assets, pointed out that "the major central banks around the world seem to have reached the end of their tether. They are obviously worried that monetary policy has not yet clearly reached the goals expected by policy makers, so they ask themselves, what is the reason for this and how should they deal with it?"

Kochan further pointed out that if the central bank decision-makers ignore the threat of inflation, this strategy may be called "immediately ignite inflation", which is in line with the "immediately fight against inflation" launched by President Ford in the 1970s.

Kochan, who is expected to be the chief economist of Morgan Stanley in the United States in October this year, said, "Everyone doesn't like to see high inflation, but no one knows where the bottom line is."

The Federal Open Market Committee (FOMC) will hold a two-day monetary policy meeting on September 20-21, and make a statement at 2:15 p.m. EDT on September 21. Economists generally expect that the Federal Reserve will adopt the method of "selling short-term treasury bonds and buying long-term treasury bonds" (the so-called "distortion operation") to lower the long-term interest rate of the market to stimulate Economics Growth. Since December 2008, when the Federal Reserve announced to cut interest rates to nearly zero, it has purchased US $2.3 trillion of treasury bonds.

According to the minutes of the August 9 monetary policy meeting released by the Federal Reserve on August 30, the Federal Reserve has made a commitment to the market to maintain the ultra-low interest rate of 0-0.25% at least until the middle of 2013. This commitment is to determine the future interest rate level based on a clear unemployment rate or inflation target.

Charles Evans, chairman of the Chicago Federal Reserve, pointed out in his speech on September 7 that as long as the inflation level remains below 3% and the Federal Reserve has committed to ultra-low interest rates, it should depend on whether the unemployment rate should drop to about 7% or 7.5%. The unemployment rate of the United States remained at a high of 9.1% in August, and the core inflation rate of food and energy prices, which the Federal Reserve has always emphasized, rose by 1.6% in July.

The Global Economic Outlook report released by the International Monetary Fund (IMF) on September 14 pointed out that global central bank policymakers should pay attention to the core inflation rate, which can effectively reflect the price trend, and the price level is expected to be stable in the medium term. In addition, the World Bank and IMF will hold regular annual meetings this week.

The global economic growth has slowed down, pushing down food and energy prices. The rise in consumer prices is expected to slow down and reverse the trend of soaring at the beginning of this year. Economists at JPMorgan Chase estimate that the average inflation in developed countries will reach 1.3% in the second quarter of 2012, lower than 2.7% in the same period this year.