Fed worried by inflation running too cold

Federal Reserve officials are just as worried about an inflation rate that runs too cold as one that runs too hot.

While rising prices are in the spotlight now as the economy reopens and demand surges, the longerrun trends that have suppressed costs globally could re-emerge as the pandemic ends, some policymakers warn. That would make it harder to deliver on their new strategy of running inflation above their 2% target for a time in order to achieve that goal over the longer run.

“We are probably more likely to be successful with the new monetary policy regime than if we didn’t have it,” Boston Fed President Eric Rosengren said in a Bloomberg News interview this week. But based on the experience of the last decade “you have to take seriously the idea that it is not going to be that easy to get 2% inflation.”

Investors are likely to hear more on the topic from Fed Chair Jerome Powell when he speaks at a event held by the Economic Club of Washington on Wednesday.

Policymakers at the central bank have been pressed in recent weeks about whether an expected spike in prices -- as the U.S. rebounds from pandemic shutdowns -- will be a temporary blip or something more permanent and dangerous to the economy after a wave of unprecedented monetary and fiscal stimulus over the past year.

For years, major economies including the U.S., Japan and the euro zone have struggled to raise inflation to 2% despite aggressive monetary policy actions.