Minutes of the Federal Open Market Committee's July meeting show a growing debate about inflation and why it's retreating, instead of advancing, in the face of 4.3 percent unemployment. The central bank is puzzled that prices have been soft for several months.


Policy makers basically have until December to either see inflation head back toward their 2 percent target or figure out how to respond if it doesn't behave... Delaying until December gives officials at least four more months of inflation data. Most still see it returning to its target...

The account of the July conclave even suggested some heretical questioning of the link between very low unemployment and wages and inflation. The majority are still wedded to the traditional models.

See also this article. It's hard to believe the Fed doesn't really understand that wages are sluggish and jobs are non-full-time (even though headline unemployment is low) -- or that the stagflationary 70s and low-inflation 90s prove that the economy is often not in "wage-price spiral mode". Rather, it seems more likely that the Fed is just "boxed in", and trying to figure out what it can plausibly (and politically) do to not crash the market too hard.

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