Inflation Expectations Falling, Will Narayana Kocherlakota Admit He Was Wrong?

Posted on  

"Inflation Expectations Falling, Will Narayana Kocherlakota Admit He Was Wrong?"

When dissenting from the Federal Reserve Open Market Committee’s modest gesture in the direction of monetary stimulus, Minneapolis Fed President Narayana Kocherlakota did the world the favor of offering an actual explanation for his conduct, which is more than either of the other two dissenters did. He wrote that “Going forward, my votes on monetary policy will continue to be based on the evolution of the data on PCE inflation and its components, medium-term PCE inflation expectations, and unemployment.”

Well, today the Cleveland Fed released its monthly update of inflation expectations and guess what—they’re low and falling:

The hawks on the Fed appear to have decided that the unofficial target of 2 percent that the Fed used in the 1990s and 2000s was too high and that they want to push inflation down to maybe 1.5 percent. That wouldn’t be without precedent. After the 1982 recession, the Fed seems to have targeted 3.5-4 percent inflation for a while and then took advantage of the 1991 recession to disinflate down to 2 percent. In the current context, the price of opportunistic disinflation is prolonged mass unemployment. The benefit is unclear. This is, however, the indicator the hawks say they’re looking at.

« »

By clicking and submitting a comment I acknowledge the ThinkProgress Privacy Policy and agree to the ThinkProgress Terms of Use. I understand that my comments are also being governed by Facebook, Yahoo, AOL, or Hotmail’s Terms of Use and Privacy Policies as applicable, which can be found here.