Will High Oil Prices Regulate the U.S. Economy? Written By: Eben Esterhuizen 2008-05-28 00:09:20 "In the U.S., the Euro Area and the U.K., the track record of inflation during the past few years has deteriorated to the point that a material loss of credibility may well be imminent for all three central banks involved - the Fed, the ECB and the Bank of England," wrote Willem Buiter in a recent piece published by the Financial Times.
"Not surprisingly, mean inflation expectation one year ahead (according to the University of Michigan survey) now stand at 5.7 percent. Mean inflation expectations 5 to 10 years ahead are 3.5 percent. Loss of credibility in the Fed’s willingness and/or ability to maintain price stability is a fact - not surprising, given the institution’s willingness to cut rates massively and swiftly when the real economy turned down, despite continuing high inflation."
