Bernanke, Mervyn King tolerant to inflation to spur economy

Persistent high inflation is no longer seen as a reason to raise interest rates, even as the global growth falters.

Some Federal Reserve policy makers say they would keep the benchmark rate close to zero until price increases reached a level could be 3 per cent, former top official Vincent Reinhart said.

The Bank of England too held its key rate at a record low even as inflation in the UK exceeded its 2 per cent target for 21 August and surged to a six-year high, in a bid to safeguard its economy.

According to analysts, policy makers such as Fed chairman Ben S Bernanke and Bank of England governor Mervyn King may be challenging central-bank orthodoxy even as they risked their respective economies sliding back into recession.

According to some analysts, tolerance for higher inflation would make long-term Treasury Bonds less attractive even as it supported stocks and commodity prices.

According to Reinhart, the Fed's director of monetary affairs from 2001 to 2007 who would become Morgan Stanley's chief US economist in October, everybody knew high inflation was bad.