US inflation

According to the data provided by the US Bureau of Labor Statistics, the US inflation index stood at 0.2% in November 2016, compared to 0.4% in October 2016. The inflation figure met the market’s expectation of 0.2%.

On a yearly basis, the inflation index stood at 1.7% in November 2016. Gradually, the inflation figure is moving toward the Federal Reserve’s 2% target level.

US Inflation Meets Expectations: Is the Economy Improving?

The Fed’s rate hike

On December 14, 2016, the Fed announced a long-awaited interest rate hike for the first time in 2016. The FOMC (Federal Open Market Committee) announced a hike of 25 basis points to the federal funds rate, bringing it to the range of 0.5%–0.75%.

The Fed’s future rate hike forecast surprised the market. The FOMC announced that it could raise the key interest rate three times in 2017. In making this statement, the Fed indicated that it was optimistic about the US economy (SPY) (QQQ) (SPXL) and that we may see more hikes sooner, compared to the long wait leading up to the recent rate hike.

As the Fed has indicated a faster rate hike process in 2017, it’s suggesting that economic growth will also increase. If the labor market shows stronger performance in the future, it could boost consumer spending, which could drive inflation in the economy (VOO) (IWM).

In the next part of this series, we’ll analyze the performance of the Eurozone ZEW Economic Sentiment Index in December 2016.

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