The gap between rates on regular and inflation-protected bonds suggests<br />that consumer prices in the United States will rise only 1.6 percent a year in the next five years, down from 2 percent in March.<br />In other words, the jobs side of the mandate would seem to offer Ms. Yellen<br />and her colleagues a green light to raise rates steadily to keep the economy from overheating, while the inflation side would seem to offer instead a yellow light, and arguably a red one.<br />What is worrisome is not direct economic damage, but the fact<br />that the Fed has missed its (arbitrary) 2 percent target in the same direction — undershooting — year after year.<br />And the Consumer Price Index, excluding volatile food<br />and energy prices, rose 1.7 percent over the year ended in May, down from 2.2 percent in February.<br />It’s probably not worth obsessing too much over prices rising 1.5 percent instead of the targeted 2 percent.<br />Even for the five years after that, the rate of inflation implied by bond prices has fallen from 2.1 percent to 1.9 percent.<br />She is a labor market scholar, after all, and in her view the labor market looks pretty darn good, with a 4.3 percent unemployment rate<br />and the economy still producing more new jobs than it is new workers.
