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Fed Study Finds Virus Is a Powerful Downward Drag on Inflation

Federal Reserve Close To Making Its New Inflation Strategy Official
Photographer: Erin Scott/Bloomberg

U.S. inflation has slowed sharply since the onset of the coronavirus pandemic and a new Federal Reserve study squarely pins the blame on a collapse in demand as consumers sheltered in home to avoid infection.

The Fed targets 2% inflation according to the personal consumption expenditure price index. It also pays close attention to a core reading of that gauge which strips out volatile food and energy prices. Both measures have plummeted since the pandemic, with year-on-year core PCE standing at 0.9% in June versus 1.9% in February.