by Mish

Elusive means “6-10 months”.

Inflation is not likely to reach the Federal Reserve’s 2% annual target this year even if monthly data begins to pick up as expected, said William Dudley, president of the New York Fed, on Thursday.
“I do think inflation to start to move higher in the medium term, but probably not get all the way back to sort of 2% on a year-on-year basis,” Dudley said in remarks to reporters at his bank’s headquarters near Wall Street.
Low inflation readings since February will continue to weigh on the index until next year, he said.
“We’re not going to get to a year-over-year number of 2% until some of these very low readings drop out of the statistics six to ten months from now,” he said.
Dudley predicted the tight labor market combined with the weaker dollar should begin to foster upward inflation pressure soon.

Dudley Right on Cue

Dudley was right on cue today given that Producer Prices Unexpectedly Declined.

Transitory Factors to Continue

The Fed, at least Dudley, now believes transitory factors will continue for the rest of 2017 or so.

“Idiosyncratic and Transitory Factors”

On August 2, I noted “Idiosyncratic and Transitory Factors” Holding Down Inflation.

At that time, Loretta Mester, president of the Cleveland Fed commented: “My suspicion is it’s the idiosyncratic factors, it’s transitory and that the factors pushing down inflation are going to dissipate over time.”

Transitory for 9 Years!

Inquiring minds may be wondering how long these transitory factors have been going on.

Here is a chart of the Fed’s preferred inflation index, PCE excluding food and energy, since 1992.

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The Fed hit its inflation target precisely one time in the last 9 years.

One Time Factors

The new definition of transitory is on the order of 9 years. And in regards to “one-time” factors, it seems Mester and Dudley need to study the above chart carefully.

Inflation Puzzle

Note that the Fed cannot hit its inflation target despite a falling US dollar.

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In the real world, the Fed does not see inflation precisely because it is totally clueless about how to measure it.

Solving the Inflation Puzzle

Those hoping to solve the inflation puzzle can do so here: Central Banks Puzzled as Global Inflation Hits Lowest Level Since 2009: Solving the Puzzle.

As protection against Fed policies, it’s wise to own some gold. In case you missed it, please consider How Much Gold Should the Common Man Own?

Mike “Mish” Shedlock

Absurd Inflation Discussion by Fed Jackasses

Minutes of the July 25-26 FOMC Meeting show internal concern over the Fed’s inability to hit 2% inflation.

Down the Rabbit Hole: SF Fed President John Williams Seeks “Direct Attack” on Low Inflation

San Francisco Fed president John Williams has been yapping about the need for interest rate hikes, 4% inflation targets, and Fed-set GDP growth targets.

Barry Ritholtz Asks “Why Has Inflation Remained Low for So Long?” Mish Asks “Is Inflation Low?”

Barry Ritholtz at the Big Picture Blog asks “Why Has Inflation Remained Low for So Long?”

Is Inflation the Legacy of the Federal Reserve?

In testimony to Congress on February 27, Bernanke bragged that inflation under his and Greenspan’s watch was a mere 2% a year.

Confident Dudley Expects Rate Hikes Will Continue, Hurricane Effect to Provide Long Run Benefit

New York Fed president William Dudley expects the Fed to proceed with its asset reduction plan at the September FOMC meeting.

Rethinking the Fed's 2% Inflation Target: Spotlight On an Absurd Debate

Is the Fed's 2% inflation target too high or too low? That's the big debate now amongst central bankers.

Make Inflation Great Again! Is Trump the “Inflation President”? Spotlight on Bonds, Oil, Gold

A near-universal consensus has formed that Donald Trump is the “inflation president”.

“Idiosyncratic and Transitory Factors” Holding Down Inflation: New Definition of Transitory

The latest Personal Incomes and Outlays report showed that the Personal Consumption Expenditures (PCE) price index was only up 1.4% from the same quarter a year ago.

Inflation Expectations Rise, Spending Projections Decline

Every month the Federal Reserve Bank of New York does a survey of consumer expectations: Inflation, spending, earning, and jobs.