Will the Fed inflate the money supply in 2008?
"Bernanke, King Risk Inflation to Extend Growth Party
Ben S. Bernanke, Mervyn King and fellow central bankers may go on filling up the world economy's punch bowl in 2008, even at the risk of an inflationary hangover.
Signs that the party is ending for global growth are keeping monetary policy leaning in the same direction at major central banks, with those in the U.K. and Canada likely to join Bernanke's Federal Reserve in cutting interest rates again. The same conditions may lead the European Central Bank and the Bank of Japan, which shelved plans for raising rates, to remain on hold for months.
`I expect 2008 to mark the beginning of another global liquidity cycle,' says Joachim Fels, Morgan Stanley's London- based co-chief economist. `More signs of slowdown or even recession are likely to swing the balance towards more aggressive monetary easing in the advanced economies.'
Going against former Fed Chairman William McChesney Martin's famous central-banker job description -- `to take away the punch bowl just when the party gets going' -- isn't an easy call for Bernanke, Bank of England Governor King and other policy makers. Global inflation is the fastest in a decade, say economists at JPMorgan Chase & Co., and easier money policy may accelerate it further.
`Slowing growth and rising inflation will test central bankers to the full,' in 2008, says Nick Kounis, an economist at Fortis Bank NV in Amsterdam."