Low inflation is a choice

IN ADVANCE of the publication of their much anticipated book “House of Debt” in May, economists Atif Mian and Amir Sufi have begun blogging. The work they have done on debt and recovery over the past few years has been hugely important and influential, and their blog has quickly become a must-read. So it is a little unfair that my first mention of it here is to pick at one of their recent posts. The authors post a nice image of inflation falling ever farther behind a 2% trend from 2000, and they write:

The Federal Reserve directly controls the short-term interest rate. But what it really tries to target is inflation and its expectations. The Fed’s goal is to achieve the target of 2% inflation in the long-term, and its preferred price index is the core personal consumption expenditure price index that excludes the volatile food and energy sectors (or core PCE for short). So how has the Fed performed in achieving its target of 2% inflation in the past 15 years?

The chart above plots the implied core PCE index if inflation had met its 2% target (red line), and the actual core PCE index (blue line) starting from 1999. The blue line is consistently below the red line, the gap has only diverged further since the Great…Continue reading

Previous Post
Leave a comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: