The chairman of the Federal Reserve System (FRS), Janet Yellen, admitted that adherence to a 2% inflation target may weaken somewhat, Bloomberg writes.
As the newspaper notes, such a statement became a surprising recognition, since Yellen may soon leave the post of head of the Fed.
“I have to admit that there is some evidence that inflationary expectations could fall,” she said on October 20 at the National Economists club in Washington. Although she believes that expectations are well secured and consistent with the Fed’s goal, “this is something that can not and should not be taken for granted.”
Just five days ago, speaking at a banking conference in Washington, Yellen said that the question of whether inflation expectations in large economies have fallen is open.
If this happens, then the future head of the Fed may face difficulties. If they exist, this will create difficulties for those who head the Fed next year. Expectations shape the behavior of households and companies and, thus, help determine where inflation actually ends.
If consumers lose confidence in the Fed’s inflation target, they will resist paying for goods and services. Companies, in turn, will not increase their salaries.
This is a vicious circle that can limit the Fed’s ability to increase inflation, which has remained below 2% in the past five years.
“They have problems,” said Vincent Reinhart, a former Federal Reserve official who is now the chief economist at Standish Mellon Asset Management Co..
Experts do not expect that Yellen’s statements could lead to the Fed refusing its rate of raising interest rates for the third time this year. It is believed that the monetary policy will not change after the meeting next week, but economists believe that the probability of an increase in the rate in December is 85%.