As central bankers gather at Jackson Hole and every investor waits on the edge of their seat for a clearer signal on the direction and future of Federal Reserve monetary policy, one thing has remained fairly constant.
While there are plenty of reasons to believe it may be about to take off, U.S. inflation appears to be going nowhere.
Consensus expectations from Reuters polls of economists over the past year and a half on core PCE, the Fed’s preferred measure, have not budged more than one-tenth of a percentage point. Core PCE is forecast at 1.8 percent this year, next year and the year after.
The highest forecast polled for core PCE by any participant in the latest survey was 2.5 percent, and not until end-2017.
The lowest draws a flat line at 1.50 percent, with the consensus stuck in a steady 1.7-1.9 percent range through until the end of next year.
While hardly a disaster, expectations are not crying out for a succession of rate rises to get inflation under control, either. Instead, inflation is around where the Fed likes it to be.
The main problem is that the Fed, which has already pretty much ticked the full employment box of its dual mandate, isn’t comfortable with the idea of facing the next economic downturn with a federal funds rate that’s still so close to zero. It won’t have anything substantial to cut.
But the Fed has its work cut out for it trying to tick the second box. Inflation has been stuck in a well-established pattern for a very long time and most measures of inflation expectations are telling the same story.
As pointed out in the MacroMan blog, there have been only two months since the start of the millennium that the 10-year average of core PCE has risen above 2 percent.
That will turn at some point of course. It just might not be soon.
— with analysis by Shrutee Sarkar