Inflation Still Below Trend

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"Inflation Still Below Trend"

If the price level was above the long-term trend, and the inflation rate was above the Fed’s 2 percent target, the Fed would make money tighter. That’s its job. Instead: “The Consumer Price Index for All Urban Consumers (CPI-U) declined 0.1 percent in June on a seasonally adjusted basis […] index for all items less food and energy rose 0.2 percent in June after increasing 0.1 percent in May.”

I think it’s important not to get too hung up on whether or not to characterize this as inflation or about whether or not the Fed should fear deflation. The Fed should try to hit its price stability target. It’s been undershooting the target for a while now. That means we need looser money, aimed at the goal of restoring the price level to its trend trajectory.

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