First, the Fed assigns a much greater chance that we will reach 2 percent core inflation than is suggested by most available data. Inflation swaps suggest inflation on the Fed’s preferred PCE deflator measure will average only 1 percent over the next 3 years, 1.2 percent over the next 5 years and 1.5 percent over the next 10 years. Survey measures of expected inflation are falling not rising. Moreover, if account is taken of quality change inflation measures would have to be further reduced.
Second, the Fed seems to mistakenly regard 2 percent inflation as a ceiling not a target.
.. It is suggested that by raising rates the Fed gives itself room to lower them. This is tautologically true but I know of no model in which demand will be stronger in say 2018 if rates rise and then fall than if they are kept constant at zero.
.. The complexity is that zero rates may be less abnormal than is supposed because of fundamental shifts in the saving investment balance,