uploads///

How Could High Inflation Affect the Fed?

By

Jun. 13 2018, Updated 1:45 p.m. ET

June rate hike unaffected

To begin with, the Fed is widely expected to announce an interest rate hike of 25 basis points at the end of its two-day meeting on Wednesday. The May inflation report is unlikely to have a major impact on decisions made at the June meeting, as the data was reported after the meeting began on Tuesday. Bulls and bears may debate on whether the Fed is likely to increase rates two more times after the June rate hike.

Article continues below advertisement

Recent commentary from the Fed

During the Fed’s May meeting, the inflation (TIP) target was described as “symmetric,” suggesting that the 2% target would not be used to initiate any dramatic changes to US monetary policy. This change in the way the Fed explained the 2% inflation (VTIP) target suggested to investors that the Fed may not rush to increase rates (BND) as soon as inflation (SCHP) breaches the 2% target.

Can the Fed afford to stay behind the curve?

The Fed has left interest rates at ultra-low levels for close to a decade, only increasing interest rates by 0.25% in six instances since December 2015. With both inflation (CPI) and unemployment reaching acceptable levels, the Fed could risk staying behind the curve, increasing rates slower than required. Whereas we are most likely in the last phase of economic expansion and the additional boost from tax cuts could stretch the expansion for a little longer, this is the time for the Fed to increase ammunition to counter any future recessions.

Advertisement

More From Market Realist

    Xms6+(3L ]e{&Mؽ4q;77%D$# Y& Hώ?Hcvy]DMJ^m3RXӘ"%p$h-Iik1zQoh݀ -撖K!Y\u<0$Xfo"|<)6lsF 9:rX|5~YmlXmʖ ۂ &σD-s4(H|%/8~?~m?ݖWb36)Ӕ)%; ӝ$<]J:UӔ&$?27*faw3#Lk[FHvH:VH/__oxt\73$XВ%STO4\DpMKNI4%Z-7?SP{7lmXS])xˑ*E\;|3T"'vbF{d<ȩq+bc(&i *V7u7OP8B/͇B?&C5RkbkB_콭F 5o +x}(%/KdtK{iO$4RÑc#}|8SDsyޫzSo 0W.OLB^lf (NR>㏣_. CinA}?SP|]V.unTixտaRL_R_7
  • CONNECT with Market Realist
  • Link to Facebook
  • Link to Twitter
  • Link to Instagram
  • Link to Email Subscribe
Market Realist Logo
Do Not Sell My Personal Information

© Copyright 2021 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.