Fed likely will fo­cus on low in­fla­tion but leave rates alone

The Denver Post - - BUSINESS - By Martin Crutsinger

WASHINGTON» The Fed­eral Re­serve al­ready has achieved one of its two man­dates: With the un­em­ploy­ment rate at just 4.4 per­cent, the Fed has essen­tially max­i­mized em­ploy­ment.

It’s the Fed’s other goal — price sta­bil­ity — that’s stayed per­sis­tently out of reach. In­fla­tion has been edg­ing fur­ther be­low the Fed’s 2 per­cent tar­get. Prob­lem is, too-low in­fla­tion tends to slow con­sumer spend­ing, the U.S. econ­omy’s main fuel. Many con­sumers de­lay pur­chases if they think the same price — or a lower one — will be avail­able later.

Low in­fla­tion will likely be a key dis­cus­sion point when the Fed holds its lat­est pol­icy meet­ing this week. The cen­tral bank has raised its bench­mark in­ter­est rate twice this year, but no one ex­pects an- other hike when its meet­ing ends Wed­nes­day. And un­less in­fla­tion picks up, some an­a­lysts fore­see no fur­ther rate in­crease this year.

Fed Chair Janet Yellen deep­ened the un­cer­tainty ear­lier this month when she sounded less sure about her po­si­tion that a slow­down in in­fla­tion this year was due to tem­po­rary fac­tors. Yellen con­ceded that Fed of­fi­cials were puz­zled by re­cent de­vel­op­ments. Her re­marks lifted fi­nan­cial mar­kets as in­vestors in­ter­preted her words to sug­gest that the Fed might slow its pace of rate in­creases.

“In the past, Yellen was pretty con­fi­dent that in­fla­tion would come back, but that is now in doubt,” said Sung Won Sohn, eco­nom­ics pro­fes­sor at Cal­i­for­nia State Univer­sity-Chan­nel Is­lands.

Over the past 12 months, the in­fla­tion gauge the Fed mon­i­tors most closely has risen just 1.4 per­cent, ac­cord­ing to the lat­est data. That’s down from a 1.9 per­cent year-over-year in­crease in Jan­uary. In part, it’s why some econ­o­mists say they sus­pect the Fed may be keep­ing its rate in­creases on hold, wait­ing to see if in­fla­tion in com­ing months re­bounds.

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