Why is inflation so low? Is it a sign that the U.S. economy hasn’t recovered? Or is it due to global factors?
These are the questions Federal Reserve officials and global central bankers will grapple with at the U.S. central bank’s annual Jackson Hole policy summit.
The Jackson Hole gathering starts with dinner on Thursday night followed by two days of discussions on Friday and Saturday. Fed Vice Chairman Stanley Fischer will present his views on inflation developments on Saturday at 12:25 p.m. Eastern.
Questions about price developments are not ivory-tower concerns.
If inflation is low because of a tepid recovery, then any Fed rate hike could damage the economy.
The U.S. central bank has been inching closer to hiking rates. Fed Chairwoman Janet Yellen has said she wants to raise interest rates this year provided two conditions are met. One condition, continued job market improvement, has largely been met.
The second condition is that the U.S. central bank has “reasonable confidence” that inflation is moving higher. With the labor market stronger, the Fed has expected inflation to pick up.
But it hasn’t happened. Adding to the puzzle, wages have remained dormant.
The Fed’s favorite measure of inflation, the personal consumption expenditure index, has been below the central bank’s 2% annual rate target since 2012. It was up at an 0.3% annual rate in June.
William Dudley, the president of the New York Fed, admitted Wednesday that inflation is moving “sideways.”
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.