The sluggish global economy is also dampening the inflationary fires.Only the hard-core professionals noticed the release of the Personal Consumption Expenditure Price Index and even the professionals did not get too excited.
ADVERTISEMENT To put it simply, inflation is still not a big deal in the U.S. The PCE price index was up 1.7 percent in December compared to a year ago. The PCE is the rate targeted by the Fed, not the better known Consumer Price Index (CPI). The 1.62 percent reading was still below the Feds objective of 2 percent inflation, but it was a modest increase from recent months. Low inflation would usually be good news, but we are in a bit of an odd situation. The economy has been expanding since mid-2009, even if most people dont believe it. Unemployment is pretty low, but there are still relatively large numbers of people who probably would accept a job if they could find one. In the past, unemployment numbers like these would indicate a tight labor market, with few applicants for jobs and rising wages. In 2017, we see some modest signs of increased wage growth, but not the kind of tight labor market one might expect. The Fed has learned from past experience to be very proactive about inflation. When it sees inflationary pressures building, particularly in the form of rising wages, it tightens monetary policy by raising interest rates. With interest rates at the lowest levels since the 1960s, the Fed has already made two teeny steps toward higher rates. This all sounds like a story of ho-hum technocratic reactions to economic circumstances. But the new administration is talking about adding substantial stimulus. President Trump campaigned on a platform of tax cuts and infrastructure spending that seems likely to increase the federal budget deficit. Presidential adviser Stephen Bannon has said he wants to increase demand pressure in the economy to drive up wages, in keeping with candidate Trumps promise to help low-income workers. They are unlikely to allow inflation to spiral past 2 percent. Could this scenario play out in the coming months The political uncertainties are enormous. The White House and Congressional Republicans have yet to reach a unified budget proposal, let alone to pass legislation. Many Congressional Republicans and the Presidents Office of Management and Budget (OMB) pick are deficit hawks. However, Congressional Republicans did approve large deficits under both the Reagan and W. Bush administrations, so it is not a foregone conclusion that a deficit-increasing budget would be blocked. On the economic side, the latest report suggests that the inflation dragon has still not roused itself.
0 Comments
Leave a Reply. |
Details
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |