AP ImagesFederal Reserve Chair Janet Yellen speaks on inflation dynamics and monetary policy at the University of Massachusetts, Thursday, Sept. 24, 2015, in Amherst, Mass.
Federal Reserve Chairwoman Janet Yellen gave a speech on inflation and monetary policy at the University of Massachusetts at Amherst.
Reviewing the history and the present state of inflation, Yellen made use of nine slides to argue that inflation expectations are important for the actual realized path of inflation.
Furthermore, she argues that the forces holding back inflation these days are “transitory” and likely to let up on rates.
“I anticipate that inflation will return to two% over the next few years as the short-term factors that are presently weighing on inflation wane, supplied that financial growth continues to be powerful sufficient to comprehensive the return to maximum employment and lengthy-run inflation expectations remain properly anchored,” she stated.
But she rounded out her slides with an unsettling chart of Japan’s encounter with inflation.
“The financial outlook, of course, is highly uncertain and it is conceivable, for example, that inflation could stay appreciably below our 2% target despite the apparent anchoring of inflation expectations,” Yellen said. “Japan’s recent history may be instructive … I think that it illustrates a trouble faced by all central banks: Economists’ understanding of the dynamics of inflation is far from great.”
All of this is important as one of the Fed’s mandates is value stability. Importantly, as the Fed begins to tighten monetary policy, it has to be mindful of price tag stability moving forward.
Scroll for the charts.
Our editors found this article on this site using Google and regenerated it for our readers.
