Study urges Fed to see beyond expectations

WASHINGTON, March 8 (UPI) -- The Federal Reserve puts too much weight on inflation expectations, which blinds it to other inflation factors, a U.S. economics study said Thursday.

The theory that inflation expectations -- literally whether people expect inflation increases -- influence inflation itself has persuaded some Fed officials to "focus intensively" on them as the main inflation driver, the study cited in The Wall Street Journal said.

"Our results suggest that this practice may be misguided," the study said.

The study, to be presented to Fed policymakers Friday, urged the Fed to be open to raising interest rates a small amount earlier rather than risk greater rate hikes later.

In February Fed Chairman Ben Bernanke said: A "significant factor influencing medium-term trends in inflation is the public's expectations of inflation. It is encouraging that inflation expectations appear to have remained contained."

He said this even though inflation was higher than the Fed prefers and unemployment lower than it believes can be sustained over the long run, the Journal said.

The study was written by economists Stephen Cecchetti of Brandeis University, Peter Hooper of Deutsche Bank, Bruce Kasman of JPMorgan Chase, Kermit Schoenholtz of Citigroup and Mark Watson of Princeton University.