What does all this mean for Fed policy? Very little. However, we are likely to hear a lot more nervous talk about inflation during the summer. Gasoline prices may rise – they usually do in the summer driving season whether or not there is a war in the Middle East.
Food prices may also climb since drought and fire conditions in California haven’t improved much. Other prices – and hopefully wages — could also creep up as the economy continues to improve. Janet Yellen is correct that inflation is volatile; anxiety about inflation is even more volatile. These days that may be the only real volatility in the financial markets.
This article was written by David Blitzer, chairman of the index committee, S&P Dow Jones Indices.
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