The US inflation outlook was already steadily improving in recent months, but last week, right in the middle of the Federal Reserve’s two-day policy meeting, the dam finally broke. Monthly reports on consumer and producer prices published on the mornings of Dec. 12 and Dec. 13 indicated inflation over the last six months — as measured by the Fed’s preferred inflation gauge — has likely returned to the central bank’s 2% target on an annualized basis.
This news has significant implications for the future of monetary policy in the United States. Inflation reaching the Fed’s 2% target suggests that the economy may be on more solid footing than previously thought. This could pave the way for the Fed to continue raising interest rates in order to prevent the economy from overheating.
The news also has implications for consumers and businesses. Higher inflation means that the cost of goods and services is likely to increase, which could impact consumers’ purchasing power. For businesses, it may mean higher production costs and potentially lower profit margins.
The stock market reacted to the news, with some analysts speculating that the possibility of higher interest rates could lead to increased market volatility in the coming months.
Overall, the return of inflation to the Fed’s target is a significant development that will likely have ripple effects across the economy. It remains to be seen how the Fed will respond to this news and what impact it will have on the overall economic outlook.