Central
banks on both sides of the Atlantic took extraordinary monetary-policy
measures in September: the long awaited “QE3” (the third dose of
quantitative easing by the United States Federal Reserve), and the
European Central Bank’s announcement that it will purchase unlimited
volumes of troubled eurozone members’ government bonds. Markets
responded euphorically, with stock prices in the US, for example,
reaching post-recession highs.
Others,
especially on the political right, worried that the latest monetary
measures would fuel future inflation and encourage unbridled government
spending. In
fact, both the critics’ fears and the optimists’ euphoria are
unwarranted. With so much underutilized productive capacity today, and
with immediate economic prospects so dismal, the risk of serious
inflation is minimal.
