Vang SJC

The Federal Reserve‘s preferred measure of inflation in February fell short of the central bank’s 2% target for the 34th straight month.

The price index for personal consumption expenditures was up only 0.3% from a year earlier, the Commerce Department said in Monday. The last reading above 1% came in November.

The oil price crash, a strong dollar and weak overseas economies have all kept inflation at bay. But some slack in the U.S. economy may also be keeping prices muted.

Taking out food and energy, inflation barely firmed to 1.4% from 1.3% in January.

The Fed has two mandates: fostering maximum employment and price stability. The two aren’t at odds, at least for the moment, but we’re getting closer.

In projections released earlier this month, Fed policy makers lowered their estimate of the longer-run jobless rate to a range between 5% and 5.2%. That threshold represents what some economists call the nonaccelerating inflation rate of unemployment, or Nairu. In English, it’s the lowest unemployment rate that won’t stoke inflation.

At 5.5% in February, unemployment is still shy of that mark. But overall, the labor market has been adding jobs at a healthy clip for months and appears to be on solid ground.

Inflation, on the other hand, isn’t even close. But while some officials have flagged low inflation as a concern, most at the central bank say the soft readings are likely transitory and eventually expect it to move toward 2%.

So the Fed is expected to start raising interest rates later this year, while inflation is still quite soft, though only gradually.

“Policy makers cannot wait until they have achieved their objectives to begin adjusting policy,” Fed Chair Janet Yellen said last week in a speech. “I would not consider it prudent to postpone the onset of normalization until we have reached, or are on the verge of reaching, our inflation objective.”

Waiting too long could lead to overshooting on both mandates and encourage risky behavior by investors, she said.

“That said, we must be reasonably confident at the time of the first rate increase that inflation will move up over time to our 2% objective, and that such an action will not impede continued solid growth in employment and output,” Ms. Yellen said.

Source: Wall Street Journal

Linh Nhan