It has been relatively painless for the Fed to lower inflation to 3 per cent, but reducing it to 2 per cent – the fabled last mile – will be challenging.
Already a subscriber?The inflation battle is proving tougher than expected, but that hasn’t shaken investor confidence in the United States that the Federal Reserve will deliver on the three interest rate cuts it has pencilled in this year.
The big question now for investors is whether the Fed will still be able to engineer a soft landing, where it guides inflation lower without causing economic growth to falter, and the jobless rate to spike higher.More pessimistic economists warn that persistent inflation means that the US economy is headed for “soft stagnation”, where economic activity slows to a crawl, while inflation remains stubbornly above the Fed’s 2 per cent target.
According to the Federal Reserve of New York’s February survey, US consumers’ inflation expectations remain unchanged at 3 per cent for the coming year, but have increased to 2.7 per cent from 2.4 per cent for the next three years. Especially since investors remain confident that the Fed will deliver three rate cuts this year, with the first coming in June.
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