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Public confidence in inflation policy key to containing prices: paper

“Giving people a reason to doubt the central bank’s commitment to maintaining inflation near target is clearly costly.”” reports businessinsider.com. (Reuters) – Keeping the public confident inflation will be contained is key to keeping price rises contained, San Francisco Federal Reserve economists said in a paper on Monday that also suggested the unemployment level is all but irrelevant to the inflation trajectory.The research from the San Francisco Fed, which is viewed as a leader in labor market research, could play importantly into the central bank’s thinking on interest rates.But when the researchers modeled what would happen if inflation expectations were to rise, they found that very quickly, so too would actual inflation.”Inflation dynamics today are primarily explained, not by economic slack, but by the public’s expectations that monetary policy will keep inflation close to the Federal Reserve’s target,” the researchers wrote.
 
Source: businessinsider.com



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