Janet Yellen and the Case of the Missing Inflation

Inflation has stubbornly stayed lower than the Federal Reserve has desired for the past eight years, and it has been falling in the last few months. In a move that could well define her chairmanship of the central bank, Janet Yellen is betting that falling prices are a temporary blip that will soon be forgotten.

Janet Yellen and the Case of the Missing Inflation 15up-fed1-master768-v2

Janet Yellen and the Case of the Missing Inflation 15up-fed1-master768-v2

If her forecast is right, the Fed policy meeting on Wednesday will turn out to be a nonevent in a gradual return to normal policy. If she’s wrong, the June 2017 meeting will look like a giant unforced error that unnecessarily prolonged an era in which the Fed proved impotent to get inflation up to the 2 percent level it aims for and lost credibility needed to fight the next downturn.

The Federal Reserve is assigned a “dual mandate” — its mission is to achieve maximum employment and stable prices. Ms. Yellen emphasized that the job market looked quite healthy, justifying the Fed’s decision to raise interest rates for the second time this year and fourth time in 18 months.

She is a labor market scholar, after all, and in her view the labor market looks pretty darn good, with a 4.3 percent unemployment rate and the economy still producing more new jobs than it is new workers.

https://www.nytimes.com/2017/06/14/upshot/janet-yellen-and-the-case-of-the-missing-inflation.html?_r=0

Janet Yellen and the Case of the Missing Inflation

Janet Yellen and the Case of the Missing Inflation

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