There is an inflation gauge that the US Federal Reserve closely monitors. Obviously, this gauge informs the central bank when might be a good time to increase interest rates—otherwise known as “inflation.”
This week, the Fed saw this gauge increased 1.4 percent over this time one year ago. While it may not seem like much, this is actually the fastest 12-month advance since 2014. Now, the Fed was hoping to its 2 percent target (before introducing inflation) but with this boost, they are certain that inflation is on the horizon and will likely boost a key interest rate some time in December.
Or, as Oxford Economics senior economist Gregory Daco comments, “These readings continue to move closer to the Fed’s 2 percent target.”
And it looks like the American people may be braced for this shift. Private employers in the US increased hiring in November but consumer spending also showed a boost. These two signs, of course, are definitely beacons of economic strength which could continue to push for an interest rate hike from the Federal Reserve as early as next month.
Indeed, Jeffries LLC economist Tom Simons notes, “The income number was pretty solid, and consistent with what we’ve seen in the recent employment data,” adding that Fed officials are mandated by law to always pursue maximum employment and stable prices, indicating that they are looking, then, at the most recent data “with regard to the dual-mandate goals and they’re pretty confident that the economy is ready for one more rate hike, at least.”
MUFG Union Bank (New York) chief economist, Chris Rupkey, comments, “There is nothing in today’s reports that put a roadblock
In front of a Fed rate hike in December. The economy continues to move ahead powered by the American consumer who has got the income to both spend and save for a rainy day.”
Accordingly, Daco had predicted inflation would, in fact, begin to run over 2 percent by early next year. Of course, this would by largely influenced by the introduction of new policies from President-elect Donald Trump (which will boost spending and cut taxes). For that reason, Daco expected that the Fed would feel pressure to raise interest rates sooner, forecasting, then, not just one rate hike next year, but two; and then three more to follow in 2018.