“The risk that’s underpriced in markets is that disinflation stalls out or stops altogether and core PCE inflation starts to go up again,” he said Friday in Marrakech, Morocco, at a Euro50 seminar on the sidelines of the annual meetings of the International Monetary Fund and World Bank. “That would start a whole new round of consternation among policymakers about whether they’ve done enough.”
“If that happens the committee will have to contemplate going to 6% or 6.5%,” said Bullard, who stepped down from the Fed in August to take a job in academia. Fed officials held rates steady in a 5.25% to 5.5% target range at their last policy meeting in September, while leaving the door open to doing more to ensure inflation returns to their 2% target. The next Federal Open Market Committee rate decision is scheduled for Nov. 1.
Data Thursday showed that the core consumer price index, which excludes food and energy costs, increased 0.3% last month. Economists favor the core gauge as a better indicator of underlying inflation. The overall CPI climbed 0.4%, higher than expected, boosted by energy costs.
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