Hawk Talk

Originally published June 10, 2008

One of us heard Dallas Fed president Richard Fisher’s presentation at the Council on Foreign Relations this morning. Fisher was unsurprisingly hawkish on inflation – he said several times and in several different ways that no central bank can "countenance" a rise in inflation. He was worried that when the U.S. economy recovers from this case of "anemia" (he prefers that term to "recession"), it will start expanding with inflation at an uncomfortably high level. When asked if his colleagues shared his concerns – if, as the questioner put it, the Fed had the "character" to raise rates with the economy still sluggish, as it did in the Volcker years, he answered by saying that he had the highest respect for his colleagues. He praised Bernanke and Geithner several times, and professed his admiration for Jean-Claude Trichet as well.

TLR got the chance to ask him if there was a difference between the
inflation of the 1970s, when unit labor costs were rising and organized
labor was strong, and now, when ULCs are subdued and labor is weak. He
dismissed organized labor as a concern (odd, really, given the way COLA
contracts added to wage-push inflation in the 1970s), but said he’d be
very concerned if there were any sign that U.S. workers were beginning
to demand higher wages in response to inflation. It’s not clear how
they’d make that demand very effectively, given the rise in the
unemployment rate and fear of job loss, but he made it sound as if it
would really mark a crossing of a line in the inflation battle. We also
asked a follow up – whether China had turned from a deflationary to an
inflationary force in the world. He didn’t say yes or no, but he said
you can look at the Chinese inflation figures, which sounds rather like
a "yes." (Please see our May 1, 2008 issue for more on this.) He
distinguished between a first era of globalization, when American
workers were afraid of Chinese competition, from a second, in which
they seem less so – and might even get the idea of asking for raises,
like their Chinese counterparts.

– Philippa Dunne and Doug Henwood