A model developed by researchers at the Federal Reserve Bank of Cleveland suggests that inflation may take several years to return to the Federal Open Market Committee’s 2 percent target. This projection comes as extrinsic forces, such as supply chain constraints, have normalized.
According to a new report from the Cleveland Fed, intrinsic factors now primarily govern inflation. The model, noted for its competitive accuracy in forecasting, indicates that trimmed-mean PCE inflation will decrease gradually, reaching 2.7 percent by the second quarter of 2025. Randal Verbrugge, senior research economist at the Cleveland Fed, writes that inflation is not expected to approach 2 percent until mid-2027.
“There are both theoretical and empirical reasons to think that, absent X factors such as continued favorable supply shocks or strong productivity gains, the last half-mile could well take several years,” Verbrugge states.
The Cleveland Fed is one of twelve regional Reserve Banks in the Federal Reserve System and plays a role in formulating national monetary policy. It supervises banking organizations and provides services to financial institutions and the US Treasury. Additionally, it supports community well-being across Ohio, western Pennsylvania, eastern Kentucky, and northern West Virginia through various research and educational activities.
For further information on this topic or other economic issues covered by the Cleveland Fed:
Chuck Soder
chuck.soder@clev.frb.org
216.672.2798
