I Do Not Understand the View from the Financial Markets...

Must-Read: Stanley Fischer is off message. The right message for Stanley Fischer to be saying right now is not: "We are close to our targets... within hailing distance..."

Personal consumption expenditures Market based PCE excluding food and energy chain type price index FRED St Louis Fed

The right message is:

  1. We are deeply disappointed in our failure to hit our inflation target over the past five years.
  2. By the end of this year, our failure will have left us with a price level 3% lower than we had committed to trying to attain back at the end of 2010.
  3. That means a 3% higher real debt burden on all those who borrowed than they--trusting us--planned for back in 2010.
  4. That means a 3% windfall for all those who loaned.
  5. In fact, since 1995 we have undershot our cumulative target by 7%.
  6. Thus those who believe that our 2%/year target is not an average but a ceiling have some evidence on their side.
  7. Nevertheless, we regard 2%/year not as a ceiling but as an average going forward.
  8. And we will strive to do better in the future than we have in the past.
  9. We will strive as hard as we can to have inflation on a core PCE basis average 2% per year over the next five years.
  10. We really could use some help from more expansionary fiscal policy.
  11. Please hold us accountable.

Dean Baker: Stanley Fischer Rewrites Fed Inflation Target, Prepares to Throw People Out of Work:

MarketWatch.... quotes Stanley Fischer... as saying, "We are close to our targets" for inflation and unemployment...

...that the current 1.6 percent inflation rate shown by the core personal consumption expenditure (PCE) deflator is "is within hailing distance" of the Fed's 2.0 percent target.... [But] the 2.0 percent target was always identified as an average, not a ceiling. This means that periods of below 2.0 percent inflation should be averaged out with periods of above 2.0 percent inflation.... The year over year measure of the core inflation rate since the beginning of 2011. Not only has it been below 2.0 percent for the last four years, it shows no tendency to increase....