Listlessly rummaging thru FRED data, I noticed they offer both "real" and "nominal" measures of potential output. The difference between them, I noted, is a measure of inflation.
Hmmm, I said to myself, if I subtract the one rate from the other, I can compare the result to inflation and see how accurate these things are. The fact that both series run from 1949 to 2025 -- ten years into the future -- made these datasets all the more interesting.
|Graph #1: Inflation Embedded in Potential Output (blue) and Inflation (red)|
Close as the red and blue lines are, amazing as that is, it's nothing compared to the forecast for the 2015-2025 period. Let's get a close-up:
|Graph #2: A Look at the Years Ahead|
Not to worry. Within six months, inflation will be up over 1.5% annual. And by the end of 2017 we'll be right on target, or just a hair over.
Most amazing of all, if you ask me, by 2018 inflation is in the zone and from there on out it is smooth sailing, with inflation solidly at the two percent level, consistently at two percent, and unwavering at two percent.