So, quick: will the Fed's easy-money policies cause rampant inflation? How about any inflation at all? A prescient story over at the WSJ demonstrates one of the potential problems facing the Fed — the monetary policy driver's own inability to forecast inflation accurately:
The Fed has actually tended to do a better job at forecasting inflation than private-sector economists. But the fact remains that it is hard. Forecasters who thought that the easy-money policies the Fed has put in place since the 2008 financial crisis would send inflation spiraling higher have so far been wildly wrong. Meanwhile, economists who looked at how much slack there was in the economy were surprised that inflation didn't go even lower in the depths of the downturn.
Going forward, it's clear that the Fed faces some tough choices, and there remains risks of deflation as much as inflationary concerns. All of which means interest rates are likely to remain volatile for some time to come — and mortgage rates are likely to fluctuate more than they might otherwise, as well.
