Investors - JULY 26, 2017

Inflation expectations are little changed as Fed holds rates steady

by Loretta Clodfelter

One of the key questions leading into this week’s meeting of the Federal Open Market Committee: “How will the Fed characterize inflation in its post-meeting statement?”

The thinking, among Fed watchers, was that a shift in language about inflation — in the form of a statement that inflation was low and perhaps going lower — would signal no increase in the target federal funds rate would occur at the next meeting.

The statement on July 26, however, made clear “longer-term inflation expectations are little changed, on balance.” Indeed, the FOMC stated: “Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term.”

That could mean the next increase in the target federal funds rate — currently holding at 1 percent to 1.25 percent — could happen as early as September.

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