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Fed Can Hike Even Without Inflation - Wells Fargo

Thursday, August 6, 2015

Since early 2014 the Federal Reserve has held out two goals that must be achieved before it raises the Federal Funds rate, "maximum employment and inflation of 2 percent." In an Inflation Chart Book report this week Wells Fargo's Economics Group examine why inflation, or lack of it, should not preclude the anticipated September liftoff.

Economists Sam Bullard and Sarah House write that weak inflation has been the biggest impediment to the Fed normalizing monetary policy this year and inflation, while rising over spring and early summer is still not where policymakers would like it to be.  Increases in the personal consumption expenditure (PCE) deflator (2.4 percent) and  the Consumer Price Index (CPI) (3.5 percent) over the last three months  suggests that inflation should continue to move back toward the Fed's target but these headline gains are in near-term jeopardy. 

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