Narayana Kocherlakota, Columnist

Don't Let the Dollar Fool You, Fed

Its effect on inflation could lure the central bank into removing stimulus too soon.

July 25, 2017 at 10:30 AM UTC

Narayana Kocherlakota is a Bloomberg Opinion columnist. He is a professor of economics at the University of Rochester and was president of the Federal Reserve Bank of Minneapolis from 2009 to 2015.

Stay cautious, Janet.
Photographer: Andrew Harrer/Bloomberg

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Here's yet another reason for the Federal Reserve to be cautious about removing economic stimulus over the next couple years: The declining U.S. dollar might make it look like it’s generating more inflation than it is.

No matter how you look at it, including volatile food and energy prices or not, inflation has recently been falling below the Fed's 2 percent target. As of May 31, the central bank's preferred gauge -- the core price index for personal consumption expenditures -- was up just 1.4 percent from a year earlier. Here's a chart: