No-show inflation poses conundrum for US Fed

Washington

After tightening monetary policy last month for the second time this year, the US central bank is expected to pause for the next few months to monitor developments.
The Federal Reserve will leave the benchmark interest rate untouched when it meets Tuesday and Wednesday, partly because it has yet to begin to wind down its huge stock of bond holdings, and will not make another move on interest rates until that process is underway.
But the Fed also faces a growing conundrum as it waits for signs of long-absent inflation to finally appear.
In the normal course of events, as an economy recovers and hiring increases, that brings with it rising wages and inflation, which in turn prompts the central bank to hike lending rates to keep prices in check while still allowing economic growth to continue.
But despite nearly seven years of uninterrupted job creation and a very low unemployment rate of 4.4 percent, inflationary pressures and wage gains show little sign of life.
The central bank is running out of explanations.—AFP

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