Uncertainty grows about direction of inflation

With central banks’ discount windows pouring money out at rock-bottom rates but economies still slow to use up excess capacity, the outlook for inflation has never been murkier. Uncertainty has created arbitrage opportunities for inflation risk managers. Laurie Carver reports

The US Federal Reserve’s announcement on August 10 that it was to reinvest the proceeds from its maturing mortgage bonds, bought during the quantitative easing programmes of the last 18 months, into US treasury bonds, was just the latest in a series of ultra-loose policy decisions by the central bank.

As economist Milton Friedman famously said, inflation was “always and everywhere a monetary