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Inflation: No Huge Headache Yet

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A Federal Reserve plan to invest in Treasury securities has sparked some dread that such attempts to stimulate the economy might fuel inflation.

It’s still early, but so far the Fed has done a respectable job, Brian Kilb, executive vice president and chief operating officer at Landaas & Company, told a Milwaukee radio audience.

Brian was interviewed on WISN-AM (1130) by a guest host, Ted Kanavas, a former Wisconsin state senator and software executive, who asked about a number of economic issues, including unemployment, the federal budget and state business prospects.

Click the audio player to listen to the complete interview.

Here is a transcript of their exchange on monetary policy:

Ted Kanavas: “What’s going on with the Fed, and does the Fed have their finger on the pulse or are these guys completely out of control?”

Brian Kilb: “I actually respect what they’ve done so far. If you’re kind of going to the place where inflation somewhere down the road’s going to be a huge headache, it doesn’t have to be that way.

“It could be that way, but inflation is the product of two things: It’s a product of having a lot of money in the marketplace; but it’s also a product of having that money go from hand to hand to hand – what we would call velocity, in economic terms.

“Certainly, we’ve printed a lot of money. It’s out there in the system. But the money’s not going anywhere. Most of the money’s in corporate America’s cash vaults. A lot of the money’s in bank reserves. There isn’t velocity to speak of in the economy.

“(Fed) Chairman (Ben) Bernanke’s smart enough to know that those two components are equally key, and he’s monitoring where we are from a velocity standpoint. It’s not that hard to pull the money out of the system in the same fashion that he put it into the system.

“Now, it’s appropriate to ask whether he’s willing to do that or not. Just because he can doesn’t mean he will. But again, he’s said it several times. He said it in hearings last week that he’s well aware of the inflation situation. He has answers for it, and when the time is right, he’ll do what he has to to pull money back out of the system.”

initially posted on February 22, 2011

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