Fed puzzled by inflation, but rate rise still on

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12 Oct, 2017

Fed puzzled by inflation, but rate rise still on

Lagging inflation rates are puzzling policymakers at the US central bank, but Federal Reserve chair Janet Yellen urged “some patience” as the Fed considers plans to raise interest rates once more this year.

The subject of conversation during the Fed’s last meeting on monetary policy in September was the slow pick-up in price increases across the US. Many policymakers are concerned that lagging inflation rates could be due long-term trends and not just short-term factors, the BBC reports.

If so, then this slow growth of inflation that the US is currently experiencing could potentially continue into next year. According to an official account, the Fed is likely to raise the benchmark interest rate in so long as the medium-term economic outlook remains unchanged.

Several members of the US central bank said their willingness to take action would depend on incoming economic data.

"All agreed that they would closely monitor and assess incoming data before making any further adjustment to the federal funds rate", they said.

Interpretation of new data (including inflation) could be obscured due to recent hurricanes which have wreaked havoc in parts of the US.  However, despite this,  the official account from September’s minutes meeting published on Wednesday said that the recent hurricanes had not disrupted that outlook.

Indeed, the Fed forecasts that growth will begin to slow for a few months but it does not expect a long-term effect.

The Fed are due to meet next at the end of October and beginning of November but investor predict that the FED will not raise rates until its final meeting of the year in December, thus signalling an end to their stimulus campaign of keeping rates low to encourage economic growth.

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