Uncertainty around forecasts for inflation is broadly comparable to historical norms, say Cleveland Fed researchers
Two factors that will likely influence the timing of an increase in the Federal Reserve’s target interest rate are labor market conditions and the outlook for inflation. PCE inflation has been running below the Fed’s 2 percent objective. But a range of forecasting models call for inflation to pick up over time, with inflation in two years expected to be greater than inflation in one year, according to Federal Reserve Bank of Cleveland researchers Edward S. Knotek II, Saeed Zaman, and Todd E. Clark.
In an absolute sense, the researchers say the uncertainty surrounding these projections is large. But they note that this comes as no surprise, as forecasting inflation far into the future is always difficult. Measuring how uncertainty today compares with its past values, they find that PCE inflation forecast uncertainty today is perhaps somewhat elevated compared with the norms of the last 20 years, while forecast uncertainty for core PCE inflation is relatively low. Focusing on the recent past, however, they find inflation forecast uncertainty as of the first quarter of 2015 is much lower than it was around the Great Recession.
Federal Reserve Bank of Cleveland
The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.
The Cleveland Fed, with branches in Cincinnati and Pittsburgh, serves an area that comprises Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.
Media contact
Doug Campbell, doug.campbell@clev.frb.org, 513.218.1892
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