Inflation barely moving, despite the Fed’s efforts

Kimberly Adams Aug 19, 2015
HTML EMBED:
COPY

Inflation barely moving, despite the Fed’s efforts

Kimberly Adams Aug 19, 2015
HTML EMBED:
COPY

Numbers out today from the Labor Department say consumer prices are moving at a crawl, up only two-tenths of a percent in the last year, and growing at the slowest monthly pace in three months. That low inflation certainly isn’t from lack of trying by the Federal Reserve, which has been keeping interest rates low, pumping trillions of dollars into the economy.

“They’ve printed all this money, right? And people aren’t spending it,” says Anna Rathbun, director of research at CBIZ Retirement Plan Services.  “And they can’t make people go out and spend.”

But she warns there’s a risk if the Fed raises rates too soon.

“Because if they raise rates while the inflationary pressure is not there, and it’s too low, it could slip down and become deflation, and when this happens the Fed runs out of ammunition,” she says.

The Federal Reserve is already trying to fight off global pressures, says Gennadiy Goldberg of TD Securities.

“The fact that we have a global supply chain has actually allowed us to be very sensitive to inflation in other places in the world,” Goldberg says. He adds that those pressures from countries like China and Brazil are pushing inflation down here at home, along with other factors.

And remember, a little bit of inflation is supposed to be a good thing, says Ted Peters, CEO of Bluestone Financial Institutions Fund and a former member of the Federal Reserve of Philadelphia.

“You need a little bit of inflation to give companies pricing power and for them to be able to increase their prices,” he says. “And if they increase their prices and make more money, then hopefully they pass that along to their employees as well.”

But today’s minutes from the July meeting of the Federal Reserve’s Open Market Committee predict we won’t reach the Fed’s 2 percent inflation target anytime soon.  

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.