Inflation Is Nowhere in Sight
Stocks and commodities have rebounded from their December swoon, but disinflation makes this a selling opportunity.
Inflation has gone missing.
Photographer: Daniel Berehulak/Getty Images EuropeFearing that low unemployment would spur serious inflation, the Federal Reserve has raised its benchmark interest rate nine times since December 2015 and has started to shrink the size of its balance sheet assets in an effort to tighten credit. So imagine the surprise when the minutes of the Fed’s December monetary policy meeting stated that “many participants expressed the view that, especially in an environment of muted inflation pressures, the committee could afford to be patient about further policy firming” (emphasis added).
This is more than policy makers looking to send a dovish signal in an effort to calm turmoil in the financial markets. Inflation is nowhere in sight, either in the U.S. or globally. The Fed’s preferred measure, the personal consumption expenditures deflator, rose 1.8 percent in November from a year earlier, below the central bank’s 2 percent target. Treasury securities indexed to inflation returned less in 2018 than conventional U.S. debt. Also, bond-market expectations for the average inflation rate in the next decade dropped from 2.2 percent last spring to 1.7 percent at year-end.