The Mystery of Missing Inflation Weighs on Fed Rate Move

Central bank officials predict inflation will approach their target in 2016. The trouble is they have made the same prediction for the past four years. If the Fed is again fooled, it may find it raised rates too soon, risking recession.

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Ms. Yellen faces dissent from Fed officials who want to keep interest rates near zero until there is concrete evidence of inflation rising, voices likely to try to put a drag on future rate increases.

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Low oil prices have helped tamp down inflation. But measures of core inflation, which exclude volatile food and energy prices, have also run below the Fed's target for more than three years. It is currently 1.3%,

"There's no way in hell anybody reasonably predicted, using the mainstream models, that you would end up with inflation this low," said Adam Posen, the president of the Peterson Institute for International Economics, a think tank with an international focus. "Macroeconomics is in the era of Kepler and Copernicus and Tycho Brahe. We built Ptolemaic models and thought we were doing quantum mechanics," said Mr. Posen