The Federal Reserve continues to argue that the inflation rate in the United States will soon return to its target rate on increase, 2.0 percent.
However, the rate of increase in the total PCE index over the past year is less than one percent.
But, then Fed officials can go to the core PCE index and show that this measure has increased by about 1.6 percent over the past year.
The forecasts of the Fed officials now show that the expectation is that inflation will hit 2.0 percent in 2018, later than earlier forecast.
However, the bond market does not seem to be so confident that inflation will return to this level anytime soon.
Calculating inflationary expectations from the bond market show that for all of 2016, bond market participants see inflation for the next ten years at 1.49 percent. This is the average for the first ten months of… Read More …