Central Bankers at Jackson Hole Search for Answers on Low Inflation

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.”

Market Watch

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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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