23 Mar

Is US Inflation Signaling a Stronger Economy?

WRITTEN BY Sarah Sands

US inflation

According to the data provided by the U.S. Bureau of Labor Statistics, the US inflation index stood at 0.1% in February 2017, compared to 0.6% in January 2017.

This inflation figure was below the market’s expectation of 0.2%. It was released on March 15, 2017.

Is US Inflation Signaling a Stronger Economy?

The trailing-12-month inflation index stood at 2.7% as of February 2017. Rising inflation in the period was driven by the sharp rise in the energy basket. The energy basket rose 15.2% in the trailing 12 months, driven by stronger crude oil (USO) (USL) (UCO) prices.

The Fed’s rate hike

On March 15, 2017, the Federal Reserve announced an interest rate hike for the first time in 2017. The FOMC (Federal Open Market Committee) announced a hike of 25 basis points to the federal funds rate, bringing it to the range of 0.75%–1%.

The FOMC announced that it would raise the key interest rate twice more in 2017. In making this statement, the Fed indicated that it was optimistic about the US economy (SPY) (QQQ) (SPXL) and that we could see more rate hikes sooner, compared to the long wait leading up to the hike in December 2016.

The Fed’s indication of a faster rate hike process in 2017 suggests that US economic growth will also increase. If the labor market continues to show strength going forward, it could boost consumer spending, which could drive inflation (VOO) (IWM).

In the next part of this series, we’ll analyze the performance of US retail sales in February 2017.

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