Federal Open Market Committee
13.12.2017
(Yellen)
Inflation is a really big question, isn't it ?
Even
with a firming of economic growth and a stronger labor market, inflation has continued
to run below the FOMC’s 2 percent longer-run objective.
What do you think about inflation?
The
softness in inflation primarily reflects transitory developments that are
largely unrelated to broader economic conditions. We
still expect inflation will move up and stabilize around 2 percent over the
next couple of years. Nonetheless, as I’ve noted previously, our understanding
of the forces driving inflation is imperfect.
We expect new hikes in interest rates?
We
still expect that the ongoing strength of the economy will warrant gradual
increases in the federal funds rate.
You
and others of the Fed have said that soft-inflation should be transitory. Are
you confident that that will still be the case, particularly regarding wage
gains? They've been pretty moderate in recent months, yet the economy is
growing and confidence is high. Is there something going on in the economy
that's making it difficult for businesses to raise wages?
The
modest pace of wage gains also probably reflects slow productivity growth. I
continue to believe that the factors that are responsible this year for holding
inflation down are likely to prove transitory.
What
do you think will be the drivers of inflation over the next couple of years,
and how long will the committee go with low unemployment, low inflation, before
you rethink monetary policy as gradual rate hikes?
I
think until this year undershoot was understandable. First we had a good deal
of slack in the labor market. Then we had plummeting oil prices, and beginning
in mid-2014, there was a marked appreciation in the dollar. And those three
factors held down inflation for a number of years.
We
seemed to be on a path of inflation moving up, and this year, beginning in
March, there seemed to be a sequence of negative surprises. Some reflect one-time
factors that were easily identifiable like a marked decline in quality adjusted
cell phone plans.
There may be other factors that are not so easy to name, but we would judge, inflation doesn't always follow exactly their errors, and many factors that affect it beyond the key influences of labor market slack, exchange rates, and import prices, and oil prices. Those are three big ones, but there are other factors that affect inflation too, and our judgment at this point is that transitory factors that are unrelated to the broader macroeconomic outlook are holding inflation down.
Dr. Engin YILMAZ
15.12.2017
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