Fed Saw Significant Inflation Risk That May Merit More Hikes
Comment of the Day

August 16 2023

Commentary by Eoin Treacy

Fed Saw Significant Inflation Risk That May Merit More Hikes

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The minutes also conveyed optimism about the outlook for the US economy as the Fed’s influential staff economists “no longer judged that the economy would enter a mild recession toward the end of the year.”

Still, they expected economic growth over the next two years “would run below their estimate of potential output growth, leading to a small increase in the unemployment rate relative to its current level.”

Eoin Treacy's view

This long-term chart of the core services less housing index helps to highlight why the Fed is so focused on getting inflation back down to trend now rather than later. The rate bottomed near 2% in 1963 and trended higher until 1970.

The closing of the gold window in 1971 temporarily got the inflation issue under control but the demise of the Dollar was one of the primary causes of the oil embargo. Inflation came roaring back, and it was a decade before the rate dropped back below 6%.

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