U.S. Outlook: Low inflation gets the Fed’s attention

Posted By Scott Anderson In Economic Outlook | No Comments

What really got the Fed to hold off on raising interest rates in September was the recent behavior and near-term outlook for U.S. inflation.

Graph showing recent drop in producer prices. [1]The Fed looked past an improving U.S. labor market to refocus its attention on the inflation side of its dual mandate.

For more on this and other developments this week, see my full report. Highlights are outlined below, followed by a link to the full U.S. Outlook report, delivered on Sept. 18.

Key observations:
  • Producer prices are the weakest we have seen since 2009. Producer price declines often lead to weaker consumer inflation down the road.
  • It’s not just energy prices that are driving the declines. Even producer food prices are dropping.
  • We have cut our own inflation forecasts as a result of these recent trends.
  • Until the Fed sees signs that energy and commodity prices are stabilizing, it could remain in a holding pattern.
Click here to read my full report. [2]

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URL to article: https://changematters.bankofthewest.com/2015/09/18/u-s-outlook-low-inflation-gets-the-feds-attention/

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[1] Image: http://blog.bankofthewest.com/wp-content/uploads/2015/09/graph_producerprices_091815.jpg

[2] Click here to read my full report.: http://blog.bankofthewest.com/wp-content/uploads/2015/09/BankoftheWest_USOutlook_09_18_15.pdf

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