With gradual adjustments in monetary policy, inflation will stabilize at around the Fed’s 2% objective over the next few years, accompanied by some further strengthening in labor market conditions, the chairman of the Federal Reserve Board said Tuesday (Sept. 26).
However, Chairman Janet Yellen noted that “the outlook is uncertain,” and admitted that the Fed board may have made some misjudgments.
Speaking to the National Association of Business Economists (NABE) in Cleveland, Yellen said the Feb board thinks that the 2017 low inflation is likely temporary, and that the board will continue to anticipate that inflation will stabilize around 2% over the next few years. “But our understanding of the forces driving inflation is imperfect, and we recognize that something more persistent may be responsible for the current undershooting of our longer-run objective,” she said.
She told the group that, as an example, the Fed may have missed several factors. “My colleagues and I may have misjudged the strength of the labor market, the degree to which longer-run inflation expectations are consistent with our inflation objective, or even the fundamental forces driving inflation,” she said.
She said that, as a result, the Fed will need to carefully monitor incoming data andadjust our assessments of the outlook and the appropriate stance of monetary policy. “But in making these adjustments, our longer-run objectives will remain unchanged–to promote maximum employment and 2% inflation,” she said.
Speech by Chair Yellen on inflation, uncertainty, and monetary policy