The Rate Hike Holiday is Here!

The Rate Hike Holiday is Here!

US consumers expect prices to rise more slowly, according to the Federal Reserve Bank of New York, a decline in inflation expectations in February that likely reinforces policymakers’ reluctance to hike rates.

It showed 1 and 3 year ahead inflation expectations were down 0.2 percentage points to 2.8% last month, with sharp declines in expected medical care expenses. Both the 1- and 3-year gauges had been unchanged since April 2018.

Stable and low inflation is one of the main reasons that the Fed having raised interest rates 4X last year, is now taking a wait-and-see approach to any more tightening in Y 2019.

The Fed is also conducting a broad policy review that may result in its welcoming inflation that is slightly and temporarily over its target.

Some FOMC members and Fed watcher think the Fed now has far more ability to respond to upward spikes in prices rather than persistently low readings because interest rate cuts lose their potency as those borrowing costs approach Zero.

Fed officials last raised their target policy rate in December to 2.25 to 2.50% but signaled after that point that they would be “patient” before deciding future moves.

The New York Fed’s survey found that consumers expected tame inflation despite also forecasting their own wages would rise. Average 1-year earnings growth expectations increased to 2.5% last month, from 2.4% the month prior.

Consumers also forecast a lower likelihood that unemployment will rise.

Economists are debating whether rising wages and low unemployment figures still translate into higher inflation as orthodox economic theory assumes.

Consumers are more optimistic about the direction of US stock prices and their ability to access credit to finance purchases.

The NY Fed’s internet-based survey taps a rotating panel of 1,300 households.

Have a terrific week

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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