Federal Reserve complacency over US inflation risks looks wrong

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Many investors are right to wonder if the ultra-low interest rates they have been semi-promised until 2023 will materialise

Statistical quirk or a warning of a fundamental change in the inflationary weather? We know on which side of the debate the US Federal Reserve will land. It will take the relaxed view that the sharpest monthly rise in US consumer prices since 2008 – 4.2% – is nothing to worry about.

The Fed is committed to keeping interest rates at rock-bottom levels into the middle distance on the grounds that an economy in recovery mode is bound to throw up a few odd-looking pieces of data. Inflation fell a year ago at the onset of the pandemic, so one should not be misled by so-called “base effects”, goes the argument. Don’t risk the recovery by reacting.

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