The Importance of Trend Inflation in the Search for Missing Disinflation
Some inflation-forecasting models based on the Phillips curve suggest that there should have been more disinflation since the Great Recession than has shown up in core PCE or core CPI data. One way researchers have found to make the disinflation disappear is to remove the long-term unemployed from the overall unemployment measure that is typically used in the models. This analysis shows that the disinflation arises in such models because of the way they account for the long-term trend in inflation. Under a different measurement of trend inflation, which historical forecast accuracy suggests should be preferable, the recent path of inflation can be reasonably well explained by an inflation-forecasting model that incorporates the overall unemployment rate.
Evaluating Progress Toward the Fed’s Inflation Target
Since January 2012, the Federal Open Market Committee (FOMC) has explicitly stated an inflation target of 2 percent. Since that time, most measures of inflation have been running persistently below that target. While in recent months some inflation indicators have made progress in moving back toward 2 percent, determining just how close we are to the FOMC’s target depends on which inflation measure we look at.
The Shifting Source of New Business Establishments and New Jobs
As markets and business patterns change, new business establishments are created to serve them. Those new establishments can be provided by entrepreneurs creating new firms or by the owners of existing businesses opening new locations. We show that over the past three decades, new establishments have increasingly been provided by existing businesses opening new locations. Those new locations have created jobs at a higher rate than brand-new firms, which helps to boost job creation. Looking at both forms of new establishments shows that job creation is down following the recession, but new locations were growing entering the recession and should be a critical component of job creation as the economy continues to recover.