Wednesday, July 8, 2009

What Could be Holding the Fed Back?

Well, it cannot be wage inflation which has held the fed back (hattip to pk):

Or exchange rates. Here's the US dollar per peso, which shows that the USD is still much stronger vs. the Peso than before the crisis started:

Here's the USD per Euro. The dollar is still stronger than it was last summer before the crash, so it can't be that.

Here's the USD vs. the Japanese yen. The dollar has strengthened vs. the yen since January after weakening in the heart of the crisis, so it can't be that either.

I wonder what has caused long-term inflation fears to reside suddenly: yields on long-term bonds (via Krugman), are actually dropping. Is the Fed hitting the spigots again?

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