The economist whose research foreshadowed the unusually long slog back from the 2008 financial crash is calling for the unlikeliest kind of central banker to lead the Federal Reserve: one who welcomes some inflation.

Harvard University Professor Kenneth Rogoff, whose influential 1985 paper endorsed central bankers focused more on securing low inflation than on spurring employment, is highlighting the benefits of a Fed led by either Janet Yellen or Lawrence Summers precisely because they fail his old litmus test. President Barack Obama said Aug. 9 that they are "outstanding" and "highly qualified" candidates to replace Ben S. Bernanke, whose term as chairman runs out in January.

What qualifies them in Rogoff's view is their dovishness, a refusal to place too much weight on stable inflation at a time when unemployment is far above its longer-run level. Rogoff is espousing aggressive monetary stimulus, even at the cost of moderate price increases. At a time of weak global inflation, higher prices may even help the U.S. economy by lowering real interest rates and reducing debt burdens, he said.

"In more normal times, you're looking for the central banker to be an anchor against high inflation expectations and to assure investors that inflation will stay low and stable to keep interest rates down," Rogoff, co-author with Carmen Reinhart of the 2009 book "This Time Is Different: Eight Centuries of Financial Folly," said in an interview. Now "we're in this situation where many of the central banks of the world need to convince the public of their tolerance for inflation, not their intolerance."

"In more normal times, you're looking for the central banker to be an anchor against high inflation expectations and to assure investors that inflation will stay low and stable to keep interest rates down," Rogoff, co-author with Carmen Reinhart of the 2009 book "This Time Is Different: Eight Centuries of Financial Folly," said in an interview. Now "we're in this situation where many of the central banks of the world need to convince the public of their tolerance for inflation, not their intolerance."

David Fuller's view Arguably, no academic economists without official roles in governments have been more influential than Kenneth Rogoff and Carmen Reinhart since their book mentioned in the paragraph above was published in 2009. Additionally, they have undoubtedly influenced government policies in the West.

In last night's Audio comments, I felt that investors would respond favourably to Kenneth Rogoff's remarks, including the emphasis on reflation and his reasons for backing either Janet Yellen or Lawrence Summers as the next Fed Chairman. This will temporarily calm concerns over future tapering of quantitative easing (QE), and encourage hopes that the so-called 'sweet spot' for stock markets will persist for the medium term.

It may, not least as central banks have had another disinflationary scare in recent months. Consequently, monetary policy remains extremely accommodative. However, the enormously influential US stock market is now somewhat overextended and more importantly, overvalued following this years' strong gains. Additionally, 2Q earnings growth did slow on average.

The global bull market has reached a mature stage for most stock markets and sectors, although not cyclical mining shares or frontier markets which are classic late-in-the-cycle performers.