As I've been droning on about, the Fed has promised to (a) keep rates near zero until at least the second half of 2014, and (b) keep inflation at or below an upper limit of 2%.
The latest report on the CPI came out today.
Behold (clic the pic for a more glorious image):
CPI inflation (blue line) is currently 2.9%. CPI less food and energy inflation (red line) has now climbed over 2% and is trending upward.
Something has got to give. Either the recovery falters or the Fed has to take a pass on one of its promises
Yes, I know that the Fed target is probably some genetically modified version of the GDP deflator.
Here's a slightly less updated inflation graph using the deflator for personal consumption expenditures (from Tim Duy at Mark Thoma):
Even this cherry picked series is over 2% and the series less food and energy is trending up and poised to hit 2%.
Please understand that I am not advocating that the Fed tighten policy right now. I think 3 or 4 percent inflation for a while would not be a disaster.
I am saying that the Fed has made some very strange promises of late that don't bode well for its vaunted "credibility".