Will it hold back economic growth?

Executive Summary

Inflation has remained stubbornly – and perplexingly – low even as the United States has experienced sustained growth after the 2007–09 recession. Federal Reserve policymakers and economists alike are puzzled by the sluggish price growth, which is a departure from the historic tendency for inflation to rise as unemployment falls. Persistently low inflation during an economic expansion poses a challenge for the Fed, which is moving to raise its benchmark interest rate after reducing it to near zero during the recession. While some policymakers, including Fed Chair Janet Yellen, say that higher inflation could be just around the corner, a number of economic experts argue that the central bank should ease off on interest rate increases until there are stronger signals that inflation really is on the rebound. Other economists say that concern over weak inflation is misplaced because slow price growth is beneficial.

Some key takeaways include:

  • Too little inflation can be just as big a problem as too much inflation, because sluggish price growth can hamper economic expansion by suppressing consumer spending.

  • Core inflation, which excludes prices for volatile categories such as food and energy, has largely hovered below the Fed’s 2 percent target rate since the recession.

  • Yellen and her likely successor at the helm of the Fed, Jerome Powell, have both called recent inflation trends a “mystery.”

Resources for Further Study



Bernanke, Ben S., “The Courage to Act: A Memoir of a Crisis and Its Aftermath,” W.W. Norton & Company, 2015. The former chair of the Federal Reserve provides an insider’s account of the 2007–09 financial crisis and the central bank’s post-crisis effort to stabilize the economy, including the move to establish an inflation target.

Reinhart, Carmen M., and Kenneth S. Rogoff, “This Time is Different: Eight Centuries of Financial Folly,” Princeton University Press, 2009. Two Harvard teachers, a professor of international finance at the John F. Kennedy School of Government (Reinhart) and an economics and public policy professor (Rogoff), examine the history of financial crises and the roles that inflation and other factors have played.


Appelbaum, Binyamin, “U.S. Inflation Remains Low, and That’s a Problem,” The New York Times, July 24, 2017, https://tinyurl.com/y93puhjo. A journalist explores the challenges that Fed officials face in dealing with stubbornly low inflation, and why the topic has become an area of focus for policymakers.

Harford, Tim, “A billion prices can’t be wrong,” Financial Times, May 13, 2016, https://tinyurl.com/y8ky84wu. A profile of the Billion Prices Project that aggregates retail prices from around the world to track inflation, and a look at how big data can help statistical agencies measure economic variables.

Lowery, Annie, “The Controversy Over Inflation,” The Atlantic, June 15, 2017, https://tinyurl.com/ybvmbc26. A review of some of the forces that could be keeping inflation soft.

McGinty, Jo Craven, “CPI vs. PCE: Untangling the Alphabet Soup of Inflation Gauges,” The Wall Street Journal, March 20, 2015, https://tinyurl.com/ybfksmqd. A deep dive into the differences between the two popular price indices and why the Fed prefers the PCE as its primary measure of inflation.

Timiraos, Nick, and David Harrison, “Mr. Ordinary: Who Is Jerome Powell, Trump’s Federal Reserve Pick?” The Wall Street Journal, Nov. 2, 2017, https://tinyurl.com/ydzx332w. Two journalists outline why President Trump’s nominee to take over as Fed chair would be unlikely to dramatically reshape the course of the central bank.

Reports and Studies

Bivens, Josh, “Is 2 percent too low? Rethinking the Fed’s arbitrary inflation target to avoid another Great Recession,” Economic Policy Institute, June 9, 2017, https://tinyurl.com/y7rfrr3t. A liberal economist makes the case for why the central bank should raise its 2 percent inflation target.

Reed, Stephen B., “One hundred years of price change: the Consumer Price Index and the American inflation experience,” Monthly Labor Review, U.S. Bureau of Labor Statistics, April 2014, https://tinyurl.com/ybyps7bk. A government economist specializing in prices and living conditions provides a comprehensive history of inflation dating from the year CPI data first became available.

The Next Step

Changing Workforce

“Beijing’s Migrant Clear-Out May Hit Growth and Fuel Inflation,” Bloomberg, Dec. 3, 2017, https://tinyurl.com/ybucr43g. A campaign by Beijing officials to cap the city’s population is driving out poorer residents, which will inevitably diminish the workforce and drive up inflation, according to research from Bloomberg economic analysts.

“Japan’s biggest lender MUFG plans to slash workforce by some 15%,” The Business Times, Nov. 21, 2017, https://tinyurl.com/y9mtkye8. One of Japan’s banking giants aims to shrink its workforce through automation and technological innovation to combat the profit squeeze caused by the country’s negative interest rate policy, which was adopted to boost inflation.

Karabell, Zachary, “How Uber’s ‘Invisible’ Workforce Could Affect Your Taxes,” Wired, Nov. 7, 2017, https://tinyurl.com/ycnm38ob. The gig economy is changing the traditional workforce, and its effect on inflation, unemployment and wage growth is still little understood.


“New York Fed President William Dudley isn’t Worried That U.S. inflation is ‘a Little’ Low,” Reuters/Fortune, Nov. 28, 2017, https://tinyurl.com/y7rbjslm. The president of the New York Federal Reserve Bank said the United States should embrace the costs and benefits of globalization and trade, and he is not troubled about weak U.S. inflation.

Bernstein, Jared, “Two inflation puzzles, one inflation monster,” The Washington Post, Sept. 11, 2017, https://tinyurl.com/yc7hqz3k. Globalization is a contributor to, but not the main factor behind, the inflation confusion, argues the chief economist for former Vice President Joe Biden.

Hannon, Paul, “BIS Says Globalization Is Answer to Inflation Puzzle,” The Wall Street Journal, Sept. 22, 2017, https://tinyurl.com/yaa2hwbt. Major central banks should provide less economic stimulus as the link between globalization and inflation grows more certain, advises a senior official at the Bank for International Settlements, a Swiss-based institution that serves as a “bank for central banks.”


American Bankers Association
1120 Connecticut Ave., N.W., Washington, DC 20036
A trade association for the banking industry.

Center for Popular Democracy
449 Troutman St., Suite A, Brooklyn, NY 11237
The progressive group whose “Fed Up” campaign advocates for the central bank to hold interest rates low to spur full employment and wage growth.

European Central Bank
60640 Frankfurt am Main, Germany
+49 69 1344 1300
The central bank for the 19 countries in the European Union that have adopted the euro as their currency.

Federal Reserve
Constitution Avenue and 20th Street, N.W., Washington, DC 20551
The central bank of the United States.

National Association of Manufacturers
733 10th St., N.W., Suite 700, Washington, DC 20001
An association representing manufacturing firms of all sizes and sectors throughout the country.

U.S. Bureau of Economic Analysis
4600 Silver Hill Rd., Suitland, MD 20746
A Commerce Department agency that produces economic statistics, including the personal consumption expenditures price index often used by the Fed to measure inflation.

U.S. Bureau of Labor Statistics
Postal Square Building, 2 Massachusetts Ave, N.E., Washington, DC 20212-0001
A Labor Department agency that tracks the consumer price index, a commonly cited measure of inflation.

DOI: 10.1177/237455680336.n1