S+B: You’ve said that the Fed’s greatest mistakes were the Great Depression in the 1930s and the Great Inflation of the 1970s. Do you think what’s happening now could be the third?
MELTZER: It’s possible that they are creating another period of sustained inflation, but I don’t think it is a high probability. There is enough concern among some of the Fed’s policymakers that I think there will be limits to how expansive the Fed will be.
S+B: Given that outlook for monetary policy, and the problems in the housing and financial markets, what do you see happening in the economy over the intermediate term?
MELTZER: I think we will see slow growth through next year. The worst of the housing problem will begin to end when we see housing prices settle, or get an idea of where they’re expected to settle. Then the economy will begin to recover. We will come out of this, although we will bear the loss of wealth. The great thing about the U.S. economy that you can’t escape is its ability to reinvent itself. The mortgage finance situation will be remembered as a serious problem, but not the most serious problem. And sometime in 2009 or 2010, we will see a return to growth.
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Rob Norton is the executive editor of strategy+business. He is the editor of CFO Thought Leaders: Advancing the Frontiers of Finance (strategy+business Books, 2005) and coauthor of Content Critical: Gaining Competitive Advantage through High-quality Web Content (Financial Times Prentice Hall, 2001).