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Article Summary Since the Fed Introduced Its Annual Goal of an Inflation

question 70

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Article Summary
Since the Fed introduced its annual goal of an inflation target of 2 percent in January 2012,the personal consumption expenditures price index has fallen short of this goal more than 90 percent of the time.This has prompted some analysts and Fed officials to acknowledge that the Fed has lost some of its credibility in achieving its 2 percent target,and has Fed officials again discussing whether to hold off on raising interest rates.Fed Governor Lael Brainard stated that the Fed's failure to increase inflation to its 2 percent target may have influenced how companies and consumers view the inflation outlook,stating "Households and firms have experienced a prolonged period of inflation below our objective,and that may be affecting their perception of underlying inflation." Since expectations influence the actions of companies and consumers,they help determine where inflation actually ends up.Consumers who are accustomed to low inflation will resist paying up for goods and services,and therefore companies will avoid increasing wages,fearing they won't be able to raise prices to cover the added labor costs.It's a vicious circle that can hinder the Fed from achieving its inflation target.
Source: Rich Miller,"Fed Officials Admit They've Lost Some Credibility on Inflation," bloomberg.com,September 13,2017.
-Refer to the Article Summary.Some analysts and Fed officials have acknowledged that the Fed has lost some of its credibility in achieving its 2 percent inflation goal,since inflation has fallen short of this goal over 90 percent of the time since it was announced in January 2012.Prior to this,over the past 25 years whenever a change in Fed policy had been announced,the change has ________ taken place,leading to ________ credibility.

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Ceiling Prices

Legally established maximum prices that can be charged for goods or services, usually set by government authorities.

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