The Fed shifts on inflation – What does it mean?
The Fed unveiled a revision to its monetary policy, allowing for higher inflation to help support the labor market. We believe this action could keep interest rates low for years.
A recent CNBC survey found, on average, economists believe the Federal Reserve will keep the federal funds rate near zero until February 2023. Given the extraordinary amount of fiscal and monetary stimulus recently, should we worry about inflation?
We agree that the Fed will be on hold for an extended period, possibly longer than the average survey results predict. However, we are not worried about inflation gaining traction anytime soon. Tightness in industrial and labor markets are typically drivers of inflation. The economic recovery has a long way to go before recovering to pre-pandemic levels.
Source: DOL, BEA, Bloomberg. Seasonally Adjusted data shown is from September 2005 through September 2020. This chart is being provided as a general source of information for education purposes only, and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy.