Transcripts

"Commentary"-Put Inflation Fears To Rest

SUSIE GHARIB: Tonight's commentator says now is not the time to panic about inflation. He's Bernard Baumohl, director of the Economic Outlook Group.

BERNARD BAUMOHL, DIRECTOR, ECONOMIC OUTLOOK GROUP: For more than two decades, Federal Reserve monetary policy has kept inflation expectations contained. But with the money spigot now open and Uncle Sam mailing rebate checks to just about everyone, there is a foreboding sense that the Fed is about to lose control over inflation again. How serious of a risk is inflation, really? To be sure, inflation is now running a little hotter than what the Fed wants. But the odds are high that prices will moderate later this year and here's why.

First, it's not just the U.S. economy that's slowing, but Europe and Japan's, too. Even China and India are showing signs of decelerating. All this will soften demand for commodities and cool inflationary pressures. Second, the scarcity of credit in the economy is inherently deflationary. Without access to loans, it's impossible for an economy to gain much traction. Third, Americans, hurt by the collapse in real estate and stock prices, are also paring back their debt, and this too is deflationary. Fourth, companies will not have much pricing power in an environment of global competition and declining world demand. Fifth, the growing slack in the labor markets should cap wage inflation and further defuse price pressures. And finally, the Fed has repeatedly said it is willing to rapidly raise rates once the economy recovers. And indeed, we're forecasting a rate hike a year from now. So let's not panic about inflation. We're not about to make the same mistakes we did in the 1970s. I'm Bernard Baumohl.

GHARIB: Ands what a day on Wall Street today, a 420 point gain on the Dow, quite a day, huh Paul?

KANGAS: Unbelievable. But it happened.

GHARIB: Sure did.