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Yellen Surprised by Inflation

Last update on: Jun 19 2020
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Anyone who’s monitored Fed pronouncements the last few years knows that the central bank has significantly overestimated inflation. While others have said forces were in place to keep inflation below what it would be at this point in a traditional business cycle, the Fed disagreed. In this article, Chairman Janet Yellen acknowledges the Fed’s been surprised by the continuation of low inflation. But she says that was due to short-term factors, and inflation is about to pick up.

“The biggest surprise in the U.S. economy this year has been inflation,” Yellen said on a panel that included Bank of Japan Governor Haruhiko Kuroda, People’s Bank of China Governor Zhou Xiaochuan and European Central Bank Vice President Vitor Constancio.

While the Fed chair said she expects a pickup, she and her colleagues “recognize that this year’s low inflation could reflect something more persistent than is reflected in our baseline projections.”

Inflation came in at 1.3 percent in August after stripping out volatile food and fuel, well below the Fed’s target. It has been headed in the wrong direction for months, and data through the end of the year will be unreliable, clouded by seasonal adjustment issues and price fluctuations wrought by hurricanes that hit the U.S. South late this summer.

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