by Calculated Risk on 10/13/2010 09:42:00 PM

Here is a different view ...

From Richmond Fed President Jeffrey Lacker: Economic Outlook, October 2010

[I]nflation is now on target, as far as I'm concerned. Over the last 12 months the price index for personal consumption expenditure has risen 1.5 percent, which is exactly what I've been recommending for the last six years. We also track a core price index that omits volatile food and energy prices, and it is sending the same message, having risen by 1.4 percent over the last 12 months. I believe that the Fed's best contribution to our nation's economic prosperity over time would be to keep inflation stable near the current 1.5 percent rate. But inflation has been lower this year, with overall inflation increasing at only a 0.7 percent annual rate, which is too low for me. I would point out that these inflation numbers often run hot or cold for several months at a time, which is why economists focus on the 12-month number I cited a moment ago. I am not yet convinced that inflation is likely to remain undesirably low. Moreover, the public's expectation of future inflation is not at such a low level; indeed, the latest survey from the University of Michigan puts the public's short-run inflation expectation at 2.2 percent. So I do not see a material risk of deflation — that is, an outright decline in the price level.

Lacker speech is a little strange because he mentions three possible reasons for the high unemployment rate - skills mismatch, extended benefits, uncertainty regarding government policies - and leaves out the most widely accepted reason: lack of aggregate demand. Weird.

And on inflation, core CPI (from the BLS) is up 1.0% over the last 12 months and median CPI from the Cleveland Fed (an alternative measure of inflation) is up only 0.5% over the last year - so I'd argue inflation is below Lacker's target.

Lacker is not currently on the FOMC.