Robert Kuttner: Food and the Fed

Posted by Michelle, August 25, 2012

The record drought and crop failures will create shortages, especially of corn, and will increase the prices of many foods that either contain the stuff or use it to feed livestock. That, in turn, will cause an uptick in the rate of inflation. And higher prices will give the inflation hawks in the Federal Reserve more ammunition in their insane campaign for higher interest rates.At the most recent meeting of its policy-setting Open Market Committee, Aug. 7, the Fed declined to lower interest rates further, under pressure from inflation hawks. The vote to keep rates at their present level was only 7-3, with the dissenters favoring tighter money.But raising interest rates now or any time in the near future would be insane, since the underlying economy remains very weak. Any increase on food prices will reflect heat waves, factory farming, and of course global climate change — not the price pressures of a recovery.

via Robert Kuttner: Food and the Fed.