The Fed: Inflation outlook still baffles the Fed

By

Senior economics reporter

Federal Reserve Chairwoman Janet Yellen

One major takeaway from the Federal Reserve’s latest meeting is that the U.S. central bank remains puzzled by the outlook for inflation, economists said Wednesday.

“They don’t really have a handle on what is keeping inflation persistently low,” said Megan Greene, chief economist at Manulife Asset Management.

Under the Fed’s way of thinking about the economy, low unemployment should already be pushing inflation higher.

Read: Fed lifts interest rates but sticks to go-slow approach as Yellen era nears end

But price pressures actually moved down this year despite almost reaching the Fed’s 2% goal in 2016.

“For a number of years, we have had an undershoot of inflation. Until this year, that undershoot was understandable,” Yellen said during her press conference.

While most Fed officials think low inflation this year is due to transitory factors, “this could end up being something that is more ingrained and turns out to be permanent,” she said.

In their economic forecasts, Fed officials marked up their GDP estimates and said that the labor market will “remain strong.”

Yet the central bank made virtually no change to the inflation outlook.

“This is a little surprising how much emphasis many FOMC members have placed on tightening labor market conditions as a precursor to inflation,” said Richard Moody, chief economist at Regions Financial Corp.

Green said she didn’t think the Fed was too worried by the inflation mystery in the short run. If the puzzle persists, it might become more of a concern.

But for the next year market conditions allow the Fed to continue to opportunistically tighten policy, probably three moves, she said.

“As long as the dollar isn’t incredibly strong, yields are low and equities are booming, I think the Fed can hike into that,” Greene said.

Filed in: Top News Tags: 

You might like:

The government has no idea how many gig workers there are—why that’s a problem The government has no idea how many gig workers there are—why that’s a problem
God-fearing countries are among the least wealthy—with one notable exception God-fearing countries are among the least wealthy—with one notable exception
America’s 1% hasn’t controlled this much wealth since before the Great Depression America’s 1% hasn’t controlled this much wealth since before the Great Depression
Women don’t see men who drive flashy cars as husband material Women don’t see men who drive flashy cars as husband material
The New York Post: Trump dubs himself ‘your favorite president’ in tweet about Michael Cohen tape The New York Post: Trump dubs himself ‘your favorite president’ in tweet about Michael Cohen tape
The Wall Street Journal: Cease-fire in place between Israel and Hamas in Gaza Strip The Wall Street Journal: Cease-fire in place between Israel and Hamas in Gaza Strip
The New York Post: New York Giants owner says Trump lacks understanding of NFL players’ anthem protests The New York Post: New York Giants owner says Trump lacks understanding of NFL players’ anthem protests
The New York Post: Most of music business’s top money makers in 2017 had been at it for decades The New York Post: Most of music business’s top money makers in 2017 had been at it for decades

Leave a Reply

Submit Comment
© 2018 Stock Investors News. All rights reserved. XHTML / CSS Valid.