Inflation is down sharply, but getting to exactly 2% will be tough

The Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures price index, measured 2.6% annually in November. So, getting that number down to the Fed’s 2% target should happen in no time, right?

The Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures price index, measured 2.6% annually in November. So, getting that number down to the Fed’s 2% target should happen in no time, right? It might not be that simple. Fed officials predict it will take two more years to get to a firm 2%, according to the Fed’s latest Summary of Economic Projections. In many ways, it was easy to get inflation down from its peak. In fact, many economists say it may not have even been necessary to raise interest rates to the highest level in 22 years in order to achieve that goal. That’s because much of the run-up in inflation came from pandemic-induced supply chain disruptions and unusual spikes in demand. “If you print up $3 trillion of new money and give it to people, you get inflation, and that’s pretty much what happened,” said John Cochrane, a senior fellow at the Hoover Institute. “But once that money is spent, inflation slows down on its own, which is also pretty much what happened.” Fed Chair Jerome Powell has steered clear of blaming government spending for the spike in inflation but acknowledged after last month’s monetary policy meeting that as supply chains unsnarled and demand normalized, inflation was bound to cool.