These are dark days for inflation hawks. For four years, they have warned that the Fed's bond-buying risks a return of 1970s-style stagflation. And for four years they have been wrong. Not just wrong; historically wrong. Indeed, core PCE inflation, the Fed's preferred measure, just hit an all-time low going back 50 years. That's a lot of years.
It's derp. Now, as Noah Smith defines it, derp means being loudly un-empirical. In other words, refusing to change your mind even after reality disproves what you believe over and over and over again. But the inflation derpers are smarter than the average derper. They realize they can't keep crying inflation when there is none, and have anyone (even the Wall Street Journal editorial page) pay attention. So now they cry financial instability and uncertainty instead. But that doesn't mean they've changed their minds: they still want the Fed to tighten, and tighten now. It's just higher-level derp.
But there's a science to this higher-level derp. Rules to follow. What are they? Well, just look at Stanford professor John Taylor's latest Wall Street Journal op-ed, which might be the ur-text of fact-free Fed fearmongering. Taylor (of the eponymous monetary policy rule) has spent the past few years fulminating against the Fed's bond-buying, because ... inflation? That's certainly part of it for someone who always carries a Zimbabwean hundred-trillion dollar bill around with him like Taylor does. But the other part of it is his idea that uncertainty over whether the Fed will end quantitative easing too fast is hurting the economy more than quantitative easing is helping. Now, this critique isn't much of one, and isn't specific to bond-buying. You can say the same about any interest rate cut. Maybe the Fed will wait too long to raise rates, and inflation will spike. Or maybe the Fed will raise rates too quickly, and send the economy back into recession. Neither of those are reasons not to cut rates (or buy bonds) in the first place. Of course, Taylor thinks it's different this time, because the Fed will have to shrink its balance sheet rather than just raising rates. But the Fed doesn't have to shrink its balance sheet; it can just raise the rate it pays on reserves.