"They're in the process of debating what should be their reaction. They know that inflation's very hard to change, that it's a sticky process; it can take years to move."
- Ethan Harris, co-head of global economics research at Bank of America
One of the main functions of a central bank in any country is to maintain price stability by managing country's money supply. Nevertheless, it seems that the U.S. central bank finds it easier to push up stocks and property values, rather than boost inflation from falling short of official targets. Even though, weak inflationary pressure on all goods from gasoline to coffee, makes them cheaper for consumers, low inflation makes it harder for borrowers to pay off their debts, while businesses struggle to boost profits. Moreover, in case disinflation turns into deflation, households would be forced to delay purchases amid expectations for even lower prices. The Federal Reserve has been constantly reiterating its pledge to keep the target for short-term interest rates around zero, until the world's largest economy and inflation both pick up, even taking into account possible tapering of monthly bond purchases. The U.S. inflation rate has undershot the official target of 2% since May 2012, and according to latest estimates, it would stay low next year, hovering around 1.25%. Regarding the pace of growth, the World Bank currently projects a 2% expansion for this year, and an acceleration up to 2.8% in 2014.
The next Fed's chairman, who will be Janet Yellen, would face significant challenge to revive economic growth. Currently Yellen is supporting the monetary policy that has swelled central bank's balance sheet to almost $4 trillion.
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