Head of the U.S. Federal Reserve Janet Yellen said she is dissatisfied with the way inflation is kept under control. According to her, it is necessary to tighten control over consumer prices growth in the present circumstances. The existing models that central banks use to estimate the level of this indicator do not meet the standards of the modern economy, and are far from certain. The reason for doubt was an unsuccessful attempt of the central banks to forecast consumer prices growth in Japan and the U.S. Based on the standard models, experts tried to predict inflation accurately. As a result, the U.S. consumer prices were several times higher than expected, while the fall of the same indicator in Japan turned out to exceed analysts’ anticipations. The data confirms the opinion of the Fed’s Chair that the models applied by the central banks in different countries are outdated and must be revised. Janet Yellen believes the Fed must have its finger on the pulse of consumer price dynamics and tighten control over the targets set by the central banks. Otherwise, the Fed will have to keep its short-term interest rates near zero. The Federal Reserve says it is ready to take this step so that not to repeat Japan’s scenario of prolonged periods of falling prices, lower wages, and economic stagnation. “The larger the shortfall of employment or inflation from their respective objectives, and the slower the projected progress toward those objectives, the longer the current target range for the federal funds rate is likely to be maintained,” she said. According to some experts, the Fed might start raising rates six months after it completes its QE tapering. The Fed's quantitative easing is expected to end in October or November 2014.
