Rate of Inflation Is Still a “Mystery” to Economists

(p. A2) CLEVELAND–Federal Reserve Chairwoman Janet Yellen on Tuesday [Sept. 26, 2017] defended the central bank’s projection for a gradual path of rate increases over the next few years despite the past few months of unexpectedly low inflation.
. . .
Inflation, under the Fed’s preferred measure, has undershot the central bank’s 2% target for much of the past five years. Although Ms. Yellen said she expects inflation to gradually move up to the target, she acknowledged the uncertainty surrounding that prediction.
. . .
“How should policy be formulated in the face of such significant uncertainties? In my view, it strengthens the case for a gradual pace of adjustments,” Ms. Yellen told a National Association for Business Economics conference in Cleveland.
. . .
Still, the Fed’s understanding of inflation is “imperfect,” she said, calling the shortfall in inflation “a mystery.” “We recognize that something more persistent may be responsible for the current undershooting.”

For the full story, see:
David Harrison. “Yellen Firm on Rates; Inflation a ‘Mystery’.” The Wall Street Journal (Weds., Sept. 27, 2017): A2.
(Note: ellipses, and bracketed date, added.)
(Note: the online version of the story has the date Sept. 26, 2017, and has the title “Yellen Defends Fed Rate-Rise Plan Despite ‘Mystery’ of Low Inflation.”)

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