Charles Plosser from the Philadelphia Fed sees problems arising when a nations’ Treasury and Central Bank work too closely together creating a clear risk that government spending is financed by a central banks ability to create money. He is quoted on the Reuters newswires as saying that history shows one can get very bad examples of hyper-inflation, Zimbabwe being an extreme example. He goes on to say that the Fed funds rate will have to increase, although the economy is not ready for it yet, and he reiterated that inflation could become a problem.
On a brighter note he sees the US recession moving into a milder phase. The USD remains weak in Asia although off its lows as USD/JPY shorts cover ahead of the BOJ event risk.
