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Inflation Hawks Have Been Wrong for Years. Should We Listen to Them Now?

Getty Images/Chip Somodevilla

Richard Fisher, the president of the Dallas Federal Reserve, has an op-ed in Monday’s Wall Street Journal warning that the Fed’s current policy risks sparking high inflation. “Given the rapidly improving employment picture, developments on the inflationary front and my own background as a banker and investment and hedge fund manager,” Fisher writes, “I am increasingly at odds with some of my respected colleagues at the policy table of the Federal Reserve as well as with the thinking of many notable economists.”

This isn't the first time Fisher has been at odds with his colleagues. When the Fed undertook “Operation Twist” in 2011, Fisher was one of three members of the Federal Open Market Committee—the committee that decides Fed policy—to dissent. He's also been the committee’s staunchest inflation hawk, and Monday’s op-ed was just the latest of many warnings Fisher has issued over the past few years about supposed forthcoming inflation. Here are five examples since 2011:

1. April 8, 2011: "Having done our job, I see many risks to the Federal Reserve overstaying its position. There is the risk that we might breach our duty to hold inflation at bay."

2. September 27, 2011: “I might conclude by sharing my concerns about the prospect of temporarily allowing more inflation as a means of unlocking expansion in final demand…[O]nce unleashed, inflation combines with stagnation to make stagflation, the most painful of all combinations for the poor, for workers, for job seekers, for bond and stock holders and for businesses trying to navigate the economy.”

3. April 10, 2012: “I’m just reporting what I hear on the street, which is a real concern that with our expanded balance sheet, we are just a little bit in an ember of what could become an inflationary fire.”

4. September 20, 2012: “I do not see an overall argument for letting inflation rise to levels where we might scare the market. We have seen a sharp rise in inflation expectations. If you let this get out of hand, then I think we will have a market reaction.”

5. June 4, 2013: “I argue that the Fed is, at best, pushing on a string and, at worst, building up kindling for speculation and eventually, a massive shipboard fire of inflation.”

So take Fisher's predictions with a grain of salt. More than anyone else on the FOMC, he has been wrong about the economic implications of Fed policy.

But that doesn't necessarily mean that Fisher is wrong this time. There are anecdotal signs that wage growth may pick up in the fall, potentially leading to higher inflation (though not a “shipboard fire of inflation”). Last week, though, the Consumer Price Index came in at 2.1 percent. Without food and energy, it was just 1.9 percent. The Fed’s favorite measure of inflation, the PCE Deflator, rose just 1.5 percent in the past year, well under the central bank’s 2 percent target.

If wage growth picks up suddenly, these measures could surge upward, but that’s a big if. Fisher and his fellow inflation hawks (like CNBC’s Rick Santelli) want to tighten policy now to make sure that inflation stays under control. But doing so would mean blocking real wage growth for workers, something they haven’t seen in more than a decade. On the other hand, Fed Chair Janet Yellen, who has the best record of forecasting the economy out of any of her Fed colleagues, wants to keep monetary policy on its current trajectory and adjust it if inflation increases. In the meantime, she will allow wage growth to happen and continue, rightly, to ignore inflation hawks like Fisher and Santelli.