Janet Yellen, the outgoing head of the United States Federal Reserve, says the absence of inflation in 2017 is a mystery. Charles Evans, a colleague, wonders if the problem lies with the policy makers themselves.
“We’ve gained a lot of credibility, and I don’t think markets or the public are expecting central bankers to let inflation get out of hand,” Charles Evans, president of the Federal Reserve Bank of Chicago, told The New York Times in an article published December 5. “I think we’ve got a bit of a reverse problem. We haven’t demonstrated with our actions that 2 percent isn’t a ceiling.”
Yellen, Evans and the rest of the Federal Open Market Committee gather December 12 and 13 for their final meeting of the year. Evans suggested that he will be pushing his colleagues to leave the Fed’s benchmark interest rate unchanged because inflation is so weak. Most observers seem to think he will be ignored by the majority. The US unemployment rate was 4.1 percent in November, a level consistent with an economy that is at full employment. That suggests upward pressure on wages, which typically leads to faster inflation. The consensus view is that if the Fed doesn’t move now, it will have an inflation problem later.
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