Old school, indeed

Apparently the "Shadow Open Market Committee" is pushing for the Fed to start raising interest rates but soon. The WSJ reports:

The guys on the shadow open market committee are old school.

Rutgers University professor Michael Bordo said 0% interest rates, if continued for much longer, are going to cause a “run up in inflation expectations.” Noting history shows the Fed often ends up “exiting too late,” he said the central bank should be raising rates by summer, lest it engineer an unpleasant inflation situation.

Gregory Hess, of Claremont McKenna College, offered the most aggressive prescription.

“At this point it’s time for the Fed to make an announcement that it’s time to get out of the business” of owning mortgages, he said. The central bank needs to offer a timeline, saying the securities would be sold over the course of one to two years, as the Fed moves back to an all-Treasury balance sheet.

Meanwhile, Marvin Goodfriend, of Carnegie Mellon University’s Tepper School of Business, said the risk for the Fed right now was that market perceptions “are in flux” — Treasury yields spiked this week in a worrisome development — and officials should create the impression they will act to keep inflation under control, lest investor confidence be lost.

This is just a wee bit crazy. The spike in the 10-year note rate amounts to less than 20 basis points. Most of that is an increase in expected real interest rates. Expected inflation, as measured by the difference between yields on nominal and inflation-indexed 10-year Treasuries have risen by 5 basis points and is considerably lower than it was at the beginning of the year. The unemployment rate is still 9.7 percent, in case the SOMC has forgotten. So how about we wait a bit until we actually see a net job created before panicking about inflation?