Why inflation is the new variable to watch

Adam Allington Feb 26, 2015
HTML EMBED:
COPY

Why inflation is the new variable to watch

Adam Allington Feb 26, 2015
HTML EMBED:
COPY

Jobs and the labor market have held our national attention for so long, it almost seems kind of strange to now talk about inflation.

The Federal Reserve has two main jobs, one is to maximize employment. The other is to keep inflation at a certain target. Why? Because inflation and growth go hand-in-hand, and the Fed aims for a “Goldilocks” rate of inflation that will ensure wage growth and economic well-being. 

The Fed’s target is 2 percent inflation. And once we hit that point, the Fed will start to raise interest rates, to be sure the economy doesn’t overheat (Goldilocks, remember!).  But we’re nowhere that point, not least because falling fuel prices are holding inflation down. And they may continue to do so. So we can expect interest rates to remain low for a while yet.

What will turn things around? TD Securities economist Millan Mulraine says keep an eye on wages. They are trending higher, and should ultimately push inflation back in the right, upwards, direction.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.  

Need some Econ 101?

Our new Marketplace Crash Course is here to help. Sign-up for free, learn at your own pace.