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Will Weak Inflation Derail Normalization?

Source: commercial.jpmorganchase.com | Re-Post MNM Partners, LLC 12/21/2017 – 

While the market shows signs of pessimism about interest rate hikes due to relatively slow growth and soft inflation, the Federal Reserve is looking toward additional factors as it anticipates normalizing rates around 3 percent.

Futures markets have long been cautious when it comes to the Federal Reserve’s plans for interest rate normalization. The Fed anticipates raising interest rates to around 3 percent as the economy returns to full strength, but skeptical investors have waited until the last minute before pricing in each incremental interest rate hike in the recent past.

Market concerns about GDP and the overall health of the US economy have likely contributed to this skepticism, as some people view faster growth as necessary for higher interest rates. The economy is likely still headed toward the peak of the business cycle when near-zero interest rates will no longer support sustainable growth. As such, the Fed’s normalization campaign is likely to continue, regardless of concerns about relatively slow growth and weak inflation.

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