Have Inflation Rates Been Too Low Too Long?

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Inflation rates have long been an important economic indicator. In the wake of the Federal Reserve’s cut to its $85 billion per month bond-buying program, some economists are concerned America’s low inflation could bode ill. Prior to the central bank’s vote on reducing stimulus, some Fed presidents voiced concerns about whether it was the right time for a change.

Eric Rosengren, president of the Federal Reserve Bank of Boston, voted against a taper in December. ”I would prefer to wait until the economic improvement that I am forecasting is clearly evident in the data before reducing the size of the asset-purchase program. I think patience remains appropriate at this time,” said Rosengren, per The Wall Street Journal.

The Federal Reserve’s official statement revealed a degree of concern as well, noting that “inflation persistently below its 2 percent objective could pose risks to economic performance.” According to The Wall Street Journal, there has been a fair amount of time during which the inflation rate has been below the U.S. target. Still, some argue that while inflation may not be ideal, it is at least stable, and that’s good news.

“By committing to stabilizing inflation over the long run, the FOMC is de facto at least partially stabilizing the price level around a trend line. Such a policy should thus reap some of the benefits of price-level targeting,” a study from the Federal Reserve Bank of New York stated.

There are also the concerns of soon-to-be Federal Reserve Chair Janet Yellen to take into account. She says intentionally raising inflation can cause problems, too. “If you just went out and said you’re trying to raise inflation expectations, the average household would just think, ‘Oh my god, we have so many problems already, and now you want to make the cost of everything higher?’ I don’t think that’s confidence-inducing,” said Yellen, per The Wall Street Journal.

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