inflation on fed

If we look at the last Fed statement, the key new section is the following (its in the 3rd paragraph): "The Committee ... continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period."

The bold section is new, and if taken at face value, it tells you exactly what the Fed considers the sign posts for higher rates. Inflation. Nothing else.

Notably absent is employment, home prices, the dollar and anything related to the carry trade.
If take the Fed at its word then you can't possibly expect any rate hike until the end of 2010 if not well into 2011. In other words, some time period far enough into the future to make it difficult to see. We have so much slack right now that it would take tremendous growth to close the gap. If you start where GDP was at the beginning of 2008 and assumed potential GDP was 3%, we're currently about 7.7% below potential. Hell, my version of the Taylor Rule says we need -3.13% Fed funds right now. The Fed doesn't have to wait for us to close that output gap entirely, but you aren't likely to see any inflation until it gets much closer to zero

http://accruedint.blogspot.com/2009/11/fed-rate-hikes-your-employment.html

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