Inflation Hits Fed Target

Inflation is rising in the United States, but it’s unlikely that the Federal Reserve will take any immediate action to curb it. Although the Fed has mostly missed its annual 2 percent target for inflation during the last six years, it was announced Monday that consumer inflation reached the 2 percent year-over-year pace. That does not necessarily cause concern, however, as the 2 percent target is within the Fed’s long-term goals for the United States economy.

Now it’s up to the Federal Open Market Committee, a committee of the Federal Reserve Board that meets regularly to set monetary policy including interest rates, to decide how they’re going to describe the economic situation. Investors are listening intently trying to determine if there will be interest rate increases.

Back in March, the Federal Open Market Committee meeting resulted in officials being split almost evenly between projecting either two or three rate hikes during 2018. Investors hope now that there might be a fourth rate hike before the end of the year. Unlike the March Federal Open Market Committee meeting, when the Federal Open Market Committee meets next week, there won’t be a new financial forecast released, and there will be no press conference held afterward.

If the Federal Open Market Committee releases a straightforward description of the price gains, investors will likely interpret it to mean that the Fed is confident in the gradual rate increases it has been conducting for years. Because the two percent inflation rate is a target, rather than a ceiling, that means the Federal Open Market Committee would likely be equally concerned if the inflation rate were significantly below the goal.

There are a few reasons for the rise in inflation, one being that some lack-luster numbers from the previous year dropped off the year-over-year calculation. Additionally, the tightening labor market is having a strong effect on the economy. According to reports released by the federal government, both wages and salaries recorded their biggest increase in over a decade during the first quarter of 2018. The $1.5 trillion tax cut package, along with an additional $300 billion increase in government spending has been pushing up inflation.