While consumption demand would remain high, there are clear indications that investment has picked up – though perhaps not fully captured by national accounts statistics. Rising investment demand is confirmed by: First, the rise in gross fixed capital formation over the last two years by 29.6% in nominal terms and by about 9.8% in real terms.
But for reasons discussed at length in Janet Yellen’s recent speech at the University of Massachusetts, Amherst, as long as inflation expectations remain well anchored, inflation is likely to move back toward 2 percent as the transitory effects of oil prices and the dollar fade, and as the economic expansion continues. What about monetary policy?