In the midst of the worst recession of a lifetime, the Federal Reserve has built up a balance sheet of roughly $7 trillion. This has been paid for by trillions of dollars that were newly created in a rapid response to the COVID-19 recession. What has been seen despite creating all of this new money is that there has still been little core inflation to speak of.

One of the Federal Reserve’s two mandates is keeping inflation in-check. If inflation gets too high, it drives up the cost of living. If deflation comes into play, where prices begin to fall across the board, the lower cost of living is deemed to be more than negatively offset by the negative economic ramifications that follow.

Federal Reserve Chairman Jerome Powell is set to speak remotely on Thursday at a virtual version of the Fed’s annual Jackson Hole, Wyoming conference. Reports have been circulating that Chairman Powell might be pointing the Fed to take its most aggressive efforts to-date to get inflation back up to a healthy level.

With more than 10% real unemployment and with job prospects looking bleak for millions of Americans in dozens of business categories, should the Federal Reserve even be worried about driving up inflation? If the reports have been accurate and if Powell really wants to pick now as a time to drive inflation higher, this is where the dreaded “Stagflation” scenario can come into play.

Quite simply, the term stagflation is an economy that is seeing higher prices (inflation) at the same time that economic output is in stagnation. This probably does not require an economic degree to understand that it does not sound appealing to have a higher cost of living at a time when the economy is in a recession and when job prospects are so weak.

If the Fed begins targeting “average inflation” it implies that the Fed would allow prices to run higher (or “run hot”) for a longer period of time than they would under normal circumstances. Targeting higher inflation at a time of a zero interest rate policy may also imply negative real rates of return for bonds. In some ways, it could be viewed as taking on the same negative interest rate policies of Europe and Japan without formally moving interest rates below zero-percent.

It remains to be seen what the formal efforts would actually be, and how they play out may have a completely different ending than expected. After all, we have now seen two incidences barely a decade apart where the Treasury created vast amounts of new money out of thin air. On top of direct stimulus, the funds were intended to bolster the economy with the Federal Reserve’s balance sheet growth, and at the same time that short-term interest rates are effectively at zero-percent with low inflation.

One effect of creating the trillions of dollars in new money may have simply been staving off deflation. Falling prices may sound appealing if it pertains the cost of living, but this goes far beyond that. What does it say about the economy if the value of everything that is owned is worth less and less each day? And what will happen to consumer behavior if the cost of goods today will be lower tomorrow, lower the next week and lower each week thereafter? Buying likely will slow to a crawl for everything that is non-essential.

The Federal Reserve has already been using the term “symmetric” for some time in its effort to reach its inflation target. In short, the Fed will allow prices to run higher for longer without sparking an immediate need to raise interest rates.

Again, how this would all really unfold and what the ultimate consequences will be might not come out at all the way 100 economists might expect. The last decade has been proof of that, and ditto for 2020.

Jerome Powell and the Federal Reserve have already pledged that interest rates are likely to remain extremely low for quite some time ahead. Powell has not seemed to worry about inflationary pressures at all, but it would be a change in direction to actively target higher inflation while also trying to keep interest rates low.

There have been discussions around recent FOMC meetings that the Fed could attempt to target the yield curve to make sure that longer-term rates and short-term interest rates do not flatten too much or invert. That has yet to be seen, but at this time the Fed Funds rate is within a target of 0.00% to 0.25%. The 3-month T-bill was trading close to 0.10% and the 1-year T-bill was at 0.12%. The rest of the Treasury’s yield curve was seen as follows: 0.15% on the 2-year; 0.29% on the 5-year; 0.69% on the 10-year note; and 1.39% for the 30-year long-bond. The Treasury Inflation Protected Securities, or TIPS, are all trading with negative yields.

As far as what Jerome Powell will ultimately say, and then what he can or will ultimately attempt, remains to be seen. It’s always possible that he will decide at the last minute that making any more targeted inflationary comments might not be interpreted the way he intended.

There is one other thought on any targeting of inflation by the Federal Reserve. Kansas City Fed President Esther George told CNBC that she has concerns of a double-dip recession if there is a resurgence of the coronavirus. She also noted that it was too soon to speculate about whether or not the Federal Reserve might bring more stimulative help, and she would be skeptical about letting inflation run hot as some other central bank officials might prefer.

It still seems hard to imagine that the S&P 500 and the NASDAQ Composite indexes are both at all-time highs this soon after the panic-selling lows seen in March. There are more probably more risks to making too many specific inflation targeting versus generally sticking to the same message that has been in place since the kick-off of the recession.

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