Should-Read: If the Federal Reserve’s 2%/year PCE (2.5%/year CPI) inflation target were appropriate, there would be only a weak case for the proposition that the Federal Reserve is following an inappropriately tight monetary policy. Unfortunately, the Federal Reserve’s current inflation target is not appropriate: the zero lower bound, and the Federal Reserve’s limited power and willingness to do “what it takes” at the zero lower bound, means that a 2%/year PCE inflation target is almost surely inappropriately low. It runs enormous risks of prolonged, deep recession for no countervailing gain. Hence even with today’s inflation number, I still say that there is a strong case for the proposition that the Federal Reserve is following an inappropriately tight monetary policy: Katia Dmitrieva: U.S. Consumer Prices Top Forecasts, Sending Markets Tumbling: “Core gauge advances 0.3% from prior month, above projections. Apparel index rises 1.7%, most in almost three decades…

…U.S. consumer prices rose by more than projected in January as apparel costs jumped the most in nearly three decades. The report sent Treasuries and stocks tumbling, as it added to concerns about an inflation pickup that have roiled financial markets this month. The consumer price index rose 0.5 percent from the previous month, above the median estimate of economists for a 0.3 percent increase, a Labor Department report showed Wednesday. Excluding volatile food and energy costs, the so-called core gauge increased 0.3 percent, also above forecasts for 0.2 percent. It was up 1.8 percent from a year earlier, higher than the 1.7 percent estimate. The yield on 10-year Treasuries rose to 2.86 percent, while U.S. stock futures fell, as the figures renewed investor concerns that the Federal Reserve will raise interest rates at a faster pace than anticipated…