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US Inflation: No Signs of Overheating Yet

April 6, 2018

 

The Commerce Department released inflation numbers for the month of February on March 29th, revealing a 0.2% inflation figure for February, following a 0.2% figure in January. These figures are close to the 2% annual target the Federal Reserve set. Overall, the CPI increased by 2.2% YOY through February, compared with 2.1 percent in January. These figures exclude prices of what economists deem “volatile” categories, such as food and energy prices.


James Powell, the new Fed Chairman, was quoted as saying “In coming months, as those earlier declines drop out of the calculation, inflation should move up closer to 2% and stabilize around that level over the medium term.”

 

If inflation figures are higher than expected, investors can expect more aggressive interest rates

hikes from the federal reserve to avoid the economy from overheating. Should targets be met, the officials of the Federal Reserve have stated a three-quarter-point hike in interest rates this year, with the first one expectedly occurring during the first week of April. That idea has quelled the stock market, as early data on wages has created concerns about more aggressive rate hikes. Worries do remain about the implementation of tariffs proposed by the White House potentially increasing inflation figures in the short term.

 

Keith Knutsson of Integrale Advisors commented, “While there remains some uncertainty for the rest of year, investors can expect a 25 basis points hike in interest rates in the coming month, rather than a more aggressive 50+ basis points. “

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