Does the market care about creditability?

 “Creditability sounds great, but the evidence that anti-inflationary credibility is actually an important thing in the real world is nil.”

-Paul Krugman FT Interview

It is hard to find who wants central banks to be inflation fighters. Hence, there is no single group that really wants inflation creditability. This is hard to believe but seems to be the correct read of the environment.

The lenders of money believe that they can adapt to a higher but not excessive inflation. Borrowers want the debt forgiven from inflation, government believe inflation would be good, and everyone wants growth. 

Central banks are not rewarded for their creditability except in the extreme. The creditability of central bankers is only a concern to themselves and to academics at this time. Still, there is still not a critical mass of dovish central bankers at the Fed. The low rate policy is a one of transparency and semi-dovishness. The inflation target is still at 2%. When there is more talk of a 4% target, we will have moved to the creditability tipping point.

Look for more talk of higher inflation targets in the next quarter if we do not see growth.