Fed Aim Off Target as Inflation Descends Near Danger Zone

[Purveyor]

By Craig Torres Oct 10, 2014 10:57 AM ET

Federal Reserve officials are hunting for new tactics to raise price increases to their target as slowing global growth, cheaper commodities and flat wages sound warnings that inflation is descending toward the danger zone.

The Fed needs a clear strategy for getting the inflation rate higher after falling short of its 2 percent target for 28 consecutive months.

Now, as longer-run inflation expectations erode in financial markets, the Federal Open Market Committee is shifting its focus toward prices after putting its main emphasis on jobs for months. Several officials worried that “inflation might persist below” the committee’s target for “quite some time,” minutes from the Sept. 16-17 meeting said.

Too-low inflation “is getting to be a real issue again,” said former Fed Governor Laurence Meyer. With inflation at 1.5 percent according to the Fed’s preferred index, Meyer said FOMC policy makers aren’t likely to raise interest rates, even if the economy approaches full employment, defined as a jobless rate of 5.2 percent to 5.5 percent. Unemployment was 5.9 percent last month.

“The timing of the first rate hike is all about inflation,” said Meyer, now a senior managing director at Macroeconomic Advisers LLC in Washington.

more...

http://www.bloomberg.com/news/2014-10-10/fed-aim-off-target-as-inflation-descends-near-danger-zone.html

[OnlinePoker]

1. Maybe flat wages are a good reason to let inflation drop.

If people aren't making more money, raising prices on basic items through inflation means they're going backward and will never be able to afford luxury goods which will grow the economy.

[mrdmk]

3. For a growing economy, inflation needs to be between 0 to 3 percent growth

So far, inflation is holding at 1.5 percent growth according to the article. With my experience, there seems to be another problem here. The article also says, the Fed wants a higher rate of 2 percent or just above.

You need to remember, it was Alan Greenspan said for a long time, most of inflation is caused by wages. The Federal Reserve has done everything it can to keep 'wage inflation' down. At this point, the war on 'wage inflation' it is coming back to haunt our economy.

Having deflation will not be good for the economy at all. That will result in unemployment raising above the 4 - 6 percent range.

Keep this in mind, all governments juggle the numbers to keep the current administration looking good, or as best as possible.

[mrdmk]

2. The recovery was essentially the same process Japan used in 1990 resulting in the lost decade

Did the Federal Reserve expect different results?

[GeorgeGist]

4. Does anyone notice that an economic system dependent on inflation ...

can not be ecologically sound.