Why Inflation Targets Are the Main Driver for Fed’s Plans to Cut Interest Rates
Arslan Butt • 1 min read
Inflation in the US has declined from the over 2% levels of 2018 to levels of the financial crisis and recession of 2007-09. This could be the main driver for Fed’s recent dovish comments and plans to cut interest rates in the near future.
Even though Fed Chair Powell also mentioned escalating trade tensions and concerns of a potential slowdown in global economic growth, the slide in inflation remains a larger concern as far as the US economy is concerned.
Personal consumption expenditure (PCE) price index is slated to touch 1.5% in 2019 and the Fed expects this index to continue below 2% even in 2020. This would indicate a miss in inflation targets for eight consecutive years in the US.
According to updated projections, the Fed could cut interest rates by up to 0.5% by the end of 2019. But will this be enough to maintain inflation at the target rate amid the ongoing trade dispute with China?