US inflation temporarily ‘very low,’ says Fed’s Fischer

The Fed’s preferred inflation measure is 1.3 per cent, below its 2-per cent target, which has sown caution among some policymakers.

“A large part of the current inflation is temporary”.

The latest fall mirrors the drop in oil and commodity prices so it’s something the Fed will tend to look through.

He didn’t offer a prediction for the possible timing of the Fed’s first rate increase, but said “the concern about the situation is, not to move before we see inflation as well as employment returning to more normal levels”. Consumer-price inflation (CPI), a more widely-cited measure, has breached that barrier only a couple times in that span and was at 0.2% in June.

“The problem is not with the part that’s unusual in the dual mandate, namely employment, that’s doing just fine”, Mr Fischer, 71, said.

Bond investors, however, are “bet[ting] on decades of low growth and inflation” to come, says the Financial Times, reporting Dealogic’s estimate of a record 3 billion of long-dated debt – maturing in 3 decades or more – sold by governments and private companies worldwide so far this year.

Fischer, Fed Chairwoman Janet Yellen, and other officials at the central bank have said they will rely on incoming economic data to decide when to begin tightening money by raising interest rates. Yet he confessed it’s “interesting” that inflation hasn’t picked up even as the labor market has firmed. “In terms of employment, they’ve done that very well”. Global disinflation “is a factor that bothers us”, he said.

“Our duty specified in law is to the American economy”, he said. “If the rest of the works is slower, that’s not good for the US economy”.

Federal Reserve Bank of Atlanta President Dennis Lockhart last week pointed to a September move, barring a significant deterioration in the economy. Bullard votes on policy in 2016.