Low inflation not necessarily a reason to delay Fed’s first rate hike – Wells Fargo

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Nov 5, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Córdoba) - Economists from Wells Fargo pointed out that inflation expectations continue to ease further but mentioned that low inflation is not necessarily a reason to put the Fed’s first rate hike off even further, warning also that still remains a strong argument to move slowly in the case of a liftoff.

    Key Quotes:

    “Long-term inflation expectations in the University of Michigan’s Consumer Sentiment survey fell back to their series lows in October. The drop coincides with lower-than-expected inflation readings around the globe.”

    “The lack of any meaningful pickup in wage growth, even as the national unemployment rate approaches 5 percent, has led many Federal Reserve Board governors to question whether the Phillips Curve has broken down (…) We suspect the breakdown is due to the still high proportion of involuntary parttime workers and unusually low levels of labor force participation in general.”

    “The persistence of core inflation below 2 percent may be somewhat problematic longer-term, however, as businesses continue to report sluggish sales and revenue growth at a time where healthcare costs and regulatory costs have risen. The profits squeeze has fueled cost cutting and increased merger and acquisition activity aimed at cutting cost. So the persistence of low inflation is not necessarily a reason to put the Fed’s first rate hike off even further but remains a strong argument to move slowly.”
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