I had missed that nuance of Bullards words. Thanks for pointing it out, because you are right about it being deflationary rather than potentially inflationary as he implies.

Fedspeak is a language all its own. They speak kind of like a magician performs his magic, or illusion of magic. While the right hand is doing meaningless activity to keep the crowds attention on that hand, the left hand does the work to make the illusion work.

Every once in a while they hint at how their illusions work. in this article Central Banks Ponder going beyond inflation mandates an analyst Mark Zandi gives a glimpse of the Feds magic. Here is the quote from the article. The underlined and bold portion is my emphasis.

There are several reasons why central bankers are taking on, or at least talking about, broader objectives. They are more confident in their understanding of how inflation works after years of trying to control it and now have a track record of capping expectations, which has “bought them room to be aggressive in other ways,” said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania.

The key quote above for me is the part I underlined and the key words to the quote are in bold. After all, the reason money holds value is because of the confidence we have in it. Otherwise, without this confidence, the money is worth no more than the paper it is written on (or in the case of most of it being digital, nothing at all). So by capping expectations of inflation by continually talking about deflation (with their right hand) while their left hand is busy inflating to infinity. As long as people are worried about deflation they will not get in the mindset of buying ahead (to get ahead of inflation) the stuff they know they will need in the future and exacerbate the problem of those goods already rising in price. The Fed "says" it wants more inflation all the while convincing people there isn't any, so they can do more.

There is no way that over three trillion dollars of deficit spending that congress has done over the last three years is not monetary inflation. The money supply has been inflated by three trillion + dollars of government spending that they did not have the tax revenues to cover. Forget about QE. Forget about Operation Twist. Forget about the Fed buying mortgages. Just the deficit spending is new money created going directly into the economy. THAT is monetary inflation. It may not have turned into price inflation (yet) which is another Fed magic wand definition to confuse things.

Here is one other statement that deserves comment. It is not by our Fed (thank goodness) but indicates the boldness of current central bank thinking. Here is the quote:

“As we were feeling more comfortable with inflation, we were able, as a central bank, to focus -- although it was not in our direct competence -- on potential growth in Mexico and structural reforms and fiscal policy,” he said. “We could have hardly done” that without low inflation.

Again the bold and underline is my emphasis. Say WHAAAAAAAT!!!!!!!! Fiscal policy!!!!!!  Hughhhh????  Lookie there! I guess congress is no longer needed! We can (at least Mexico can) just let the central bank (that creates our money out of nothing) can take care of fiscal policy. Unbelievable he actually said that.

John