Besides, there is no need for higher Fed rates if inflation is going to moderate on its own. Some may think negative real interest rates are a stimulative monetary policy bound to accelerate inflation — but policy remains restrictive, according to Sherri Cooper, chief economist at the Bank of Montreal.

That’s because of the credit crunch. As the Fed’s April survey of loan officers showed, there “has been a record level of tightening” in U.S. credit standards. Going by my very rough calculations, this puts the effective Fed rate closer to the 3.75% rate recommended by the Taylor Rule.

Lastly, for inflation to enter a runaway phase, wages need to begin rising too. However, workers don’t have much bargaining power when job losses are piling up. The chances of a wage-price spiral commencing appear to be rather small.