The United States Department of Labour will today release inflation data for September, expected to show a rate drop to
The United States Department of Labour will today release inflation data for September, expected to show a rate drop to 1.3% from this period last year.
With current inflation below the target 2% rate, the Fed has moved to keep interest rates low to stimulate businesses to ramp-up production with cheap credit. This historic move will allow inflation above 2%, using that figure as an “average” over time rather than a stationary “target,” meaning they will not raise interest rates if inflation rises above 2% as before.
US inflation collapsed this year in the midst of a pandemic-induced recession that halted supply chains and dropped demand in every sector. As initial wide-ranging economic shutdowns subside, industries have cautiously begun to re-open and inflation has started to pick up due to demand-side pressures. Markets are uncertain if the Fed’s move will work out. If inflation stays low, it will lead to lowered demand, which will exacerbate unemployment and require large government stimulus to counteract. If inflation rises too high, it may not be controllable. Additionally, by maintaining low interest rates, the Fed may risk creating asset bubbles like the 2007 mortgage crisis.
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