Fed's Tarullo Remains Worried by Low Inflation Despite Job Gains

  • Fears of global slowdown since Sept. haven't materialized
  • More signs needed to ensure inflation rising to goal, he says

Fed's Tarullo: Liftoff Should Wait for Signs of Inflation

Federal Reserve Governor Daniel Tarullo said economic data received since the central bank met in September had been mixed, as continued low U.S. inflation tempered his enthusiasm over progress made this year in lowering unemployment.

“The U.S. economy seems still to be chugging along with modestly above-trend growth,” Tarullo said Monday in an interview on Bloomberg Television. “We’ve certainly seen continued improvement in the labor market, but the environment for inflation is still one where there is still a lot of uncertainty.”

Daniel Tarullo

Photographer: Win McNamee/Getty Images

Fed policy makers are widely expected to increase their benchmark federal funds rate by a quarter percentage point when they meet in Washington Dec. 15-16, for what would be the first rate hike in almost a decade.

Officials delayed liftoff at their September meeting as risks grew that global economy would slow. With those concerns eased, attention in financial markets is shifting to the pace at which the Fed is expected to raise rates over the coming year, with the inflation outlook forming a key component of that discussion.

"Some of the fears that many people held in the August and early September
period have not been realized," Tarullo said. "Having said that, I think it’s still mixed picture."

The Fed’s preferred gauge for inflation has been below the central bank’s 2 percent target for more than three years and registered 0.2 percent in the 12 months through September.

Some Fed officials, led by Vice Chairman Stanley Fischer, have argued that inflation will move back up close to 2 percent as the transitory effects of a strengthened dollar and oil’s price plunge fade.

Tarullo said he wasn’t in that camp.

“Others, myself included, have thought it might be better to wait for some more tangible evidence that we’re going in that direction” on inflation, he said.

Tarullo pointed to market-based and survey-based measures of inflation expectations, saying both had fallen to “historic lows.”

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