Low Inflation Puzzles Fed as a Big Move Looms
2% target elusive, but it's not expected to deter Janet Yellen
By Rob Quinn,  Newser Staff
Posted Dec 14, 2015 4:42 AM CST
Updated Dec 14, 2015 7:04 AM CST
Federal Reserve Chair Janet Yellen speaks at the Economic Club of Washington in Washington on Dec. 2, 2015.   (AP Photo/Susan Walsh)

(Newser) – The Federal Reserve is expected to raise its interest rates for the first time since 2006 when it meets this week, but some economists would like it to figure out just what is going on with inflation first. The central bank's target of 5% unemployment has been reached, but inflation is still at below 1% instead of the 2% the Fed was aiming for, reports the Wall Street Journal. It notes that economists consider a little bit of inflation healthy, since it helps boost wages and makes debts easier to pay off. The Fed predicts the figure will come near the 2% target next year, but that same prediction has been wrong the last four years, and the Journal spells out the potential trouble: "If the Fed is again fooled, it may find it raised rates too soon, risking recession."

Some economists suggest demographics plays a role, noting that the effect appears to be similar across countries with aging populations. Others, including former Fed chief Ben Bernanke, blame low government spending, but there's "very little support for the view that inflation is simple and we had it figured out," a Johns Hopkins University economist tells the Journal. Despite the inflation puzzle, Fed Chair Janet Yellen is expected to announce a rate hike this week in what the Telegraph calls a "momentous" economic event and a "hugely significant milestone of progress in the repairing of the US economy." The paper notes that it has been so long since the last interest-rate rise that it will be a completely new experience to about a third of Wall Street workers.