What’s at stake: the Federal Reserve raised the benchmark interest rate by one-quarter of a percentage point. The moved surprised no one, but it still prompted economists to asks themselves questions about the Fed’s relationship with inflation. We review the most recent contributions.
Joseph Gagnon at PIIE argues that the FOMC meeting offered three unexpected items. First, Chair Yellen pointed to “one-off” development in the prices of mobile phone service plans and pharmaceuticals in March, as the main reason the FOMC’s preferred measure of inflation has moved away from its 2 percent target to 1.5 percent as of April. Gagnon wonders whether the FOMC is revisiting the bad old days of the 1970s, when it tried to explain away inflation that was too high by pointing to a seeminglyRead More »