Inflation isn’t low, it’s just hiding in the stock market: ex-head of Bank of Israel

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Jacob Frenkel, chairman of JP Morgan Chase International and former head of the Bank of Israel

Inflation is not really low, nor is its cause a mystery, Jacob Frenkel, the former head of the Bank of Israel said Friday.

The culprit is the global central banks, said Frenkel, who is now the chairman of JPMorgan Chase International.

Keeping rates excessively low just gives people incentive to invest in the stock market, and nowhere else, he said. “Then all the inflation is reflected in the market, something that is not included in consumer price gauges.”

Frenkel said the low rates are also weakening the insurance companies and the pension systems that transmit monetary policy to the economy. So if you weaken the system, the effectiveness of policy is diminished.

“So don’t be surprised if you are missing” a 2% inflation target, he said.

Fed officials are debating whether they should raise rates again in December because inflation is so low.

Frenkel said the markets would welcome higher rates.

The Fed “should just do it,” he said.