"We have the most potentially inflationary policy I have ever observed in a developed country"

“We have the most potentially inflationary policy I have ever observed in a developed country,” said Alan Meltzer, a Fed historian and professor of political economy at the Carnegie Mellon Tepper School of Business in Pittsburgh.

According to widely used economic models, the way consumers perceive the prospect of future inflation has clear implications for prices themselves. Once higher costs are taken for granted, they are more easily tolerated.

Several indicators are already hinting at that possibility…

“There is a real risk that inflation expectations will rise above a certain threshold that suggests a loss of credibility of the Fed,” said Laurence Meyer, a former Fed governor now at Macroeconomic Advisers in Washington, D.C.