Here's the biggest news out of the Federal Reserve today: Janet Yellen and her colleagues acknowledged some measures of slowing inflation but didn't panic. An epic collapse in oil prices has dragged down what were already too-low readings on consumer prices, relative to the Fed's target of 2 percent inflation. Those developments didn't convince the Fed to change its tune.
The Fed statement did have some notable additions on inflation. First, Fed officials told us that lower oil prices will support growth because they have "boosted household purchasing power." Second, they blamed the low readings on inflation "largely" on energy prices, instead of "partly," the word they used in December. The Fed policy committee nodded toward the bond market's perception that inflation risk is very low and said "market-based measures of inflation compensation have declined substantially in recent months." They also said they expect inflation to rise "gradually toward 2 percent over the medium term." The time horizon in that phrase is new, and underscores that officials still see low inflation as a temporary issue.
This is a good article. I think the Fed will also assume that low oil prices are good for the global economy, although they will surely be factoring in a sharp slowdown in the USA’s fracking sectors.
The Fed will also be relieved by Mario Draghi’s success in launching QE in the European Union, despite Germany’s reservations. Elsewhere, stock market recoveries in China and India will lower Fed concerns about slumping GDP growth and deflationary fears, not least as technology is producing some positive deflation.Back to top