U.S. Inflation Remains Low, and That’s a Problem<br />One theory, popular among conservative economists, is<br />that the Fed causes inflation by increasing the supply of money faster than the pace of economic growth.<br />The Federal Reserve Bank of Atlanta, which predicted the economy would expand at an annualized<br />pace of 4 percent in the second quarter, now estimates second-quarter growth was 2.5 percent.<br />The Federal Reserve thinks modest inflation has important economic benefits,<br />and it has aimed since 2012 to keep prices rising at an annual pace of 2 percent.<br />She and other officials also have noted that the weakness of the global economy allowed the United States to import foreign goods at low prices.<br />But the evidence suggests people enjoy the illusion and, importantly, they respond to the illusion by behaving in ways<br />that increase actual economic growth, for example by working harder.<br />Ms. Yellen has attributed the recent weakness to declines in the prices of particular goods, like cellphone-service plans<br />and prescription drugs, that are not likely to continue.
