Inflation showing no recent sign of slowing or narrowing in scope leaves U.S. Federal Reserve policy-makers challenged this week over how to characterize their next steps even as the countdown to a contentious U.S. presidential election continues.
Data from March, for example, showed that more than half of the items in the personal consumption expenditures price index – used by the Fed to set its 2 per cent inflation target – saw inflation of greater than 3 per cent, well above the share common before the pandemic. But progress could be slow, and investors have already pushed their outlook for an initial Fed rate reduction to September. That would be in the thick of a U.S. presidential election where the state of the economy may be a central issue – and Fed decisions inevitably parsed through a political lens.
After months that have held hints of economic slowing, including first-quarter economic growth at 1.6 per cent that was the weakest in nearly two years, alongside strong price increases and job growth, there may be little to change officials’ current strategy of delaying rate cuts until the data show a convincing turn.
Fed officials have downplayed a need for another rate increase. The current rate was set in July, a nine-month plateau that already exceeds three of the five prior policy cycles, but still short of the 15– and 18-month holds just before the global financial crisis in 2007 and in the late 1990s.
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