The US Fed is confused (from what folks can tell.)
The US Fed, and most central banks, like a little inflation, but not too much. Too much makes it harder for people to spend, because they don’t get much for their money. Too little is worse if it becomes negative, deflation, because then there’s less reason to spend today and more reasons to wait for tomorrow’s lower prices. All things considered, the US Fed controls it better than most, and it does so with interest rates.
Usually in a recovery as suggested by GDP, the Fed would raise rates to curtail spending and growth. But, wages aren’t recovering, so the Fed should keep rates low to encourage consumer spending. The good news is that consumers are seeing lower costs because gas prices are down, which means the Fed could raise rates a bit; but if the gas price drop is temporary, the Fed should drop rates. Unfortunately, rates are near zero. If prices continue to drop, then deflation kicks in, which is usually fought by decreasing rates – but as noted, they are already near zero.
It may all seem academic, and is; unless you have investments, debt, or plans to retire.
Stay tuned.
“Janet Yellen Faces A Challenging Economic Dilemma As Oil Prices Fall” – Slate
Pretending Not To Panic 