Inflation may look like it’s on the rise, but it may again fail to reach the central bank’s 2% target, according to a research paper from the Cleveland Fed released Tuesday.
Inflation has been running at low levels for most of the past five years, defying forecasts from the central bank and the private sector. Low inflation is a concern for policy makers because it can sap the life out of an economy.
In recent months, inflation, as measured by the personal consumption expenditure price index, has been stirring. Overall PCE inflation over the past 12 months could hit 1.5% when October data is released on Wednesday, according to economists at RBS. That’s up from less than 0.5% in October 2015. Core inflation could hit a two-year high of 1.8%.
In the study, the regional Fed bank used six different models that have performed well in the past to assess the likelihood of inflation hitting the 2% target over the next 36 months.
Five out of six models suggest there is a less than 50% probability that PCE inflation will be hit 2% or higher over the next three years.
And all six models estimate less than 50% chance that core inflation, which subtracts volatile food and energy prices, will hit or exceed the 2% target.
Many forecasters, including top Fed officials, have said they expect inflation to rise to 2% over the next two to three years. They see the recent rise of inflation as a reason for the Fed to resume raising interest rates next month after a one-year pause.
The results of the study should bolster arguments from Fed doves, like Charles Evans, the president of the Chicago Fed, who thinks the central bank should be patient with raising interest rates until the central bank has hit the 2% target.
Read: Fed’s Evans says not confident U.S. central bank will hit its 2% target.