Josh Barro, Columnist

Low Inflation and Low Growth Mean the Fed Must Act

Inflation and growth are both still too low. The Fed would be crazy to back off on easing now.

April 26, 2013 at 1:48 PM UTC

Josh Barro is the lead writer for the Ticker, Bloomberg View's blog on economics, finance and politics. His primary areas of interest include tax and fiscal policy, state and local government, and planning and land use. Previously, Barro was a Senior Fellow at the Manhattan Institute for Policy Research and a commercial real estate banker at Wells Fargo. He holds a bachelor's degree in psychology from Harvard and lives in Queens, New York.

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This morning's economic news is bad: U.S. gross domestic product grew only 2.5 percent in the first quarter, well below the median forecast of 3 percent. And the core personal consumption expenditures price index, a measure of price inflation, came in at 1.2 percent, well below the Federal Reserve's inflation target of 2 percent.

Growth and inflation are still low and unemployment is still high. The Fed has said it will maintain a strongly accommodative stance until unemployment is below 6.5 percent or inflation is above 2.5 percent. Well, unemployment is still 7.6 percent, and inflation is not just below 2 percent now but expected to remain there for the foreseeable future: Bond prices imply expected inflation of just 1.5 percent a year for the next decade.