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Inflation vs Economy Growth | Which is Fed’s priority?

Accordingly, if the inflation were pick up, which is in the latest released data, the Fed would have to hike the interest rate to curb it…but as the FEAR of recession is real, would the Fed choose to cut the rate to save the economy instead of hike the rate to curb the inflation?

The core CPI was boosted by increases in prices for apparel, airline tickets, healthcare and household furnishings. In the 12 months through July, the core CPI climbed 2.2%, the biggest gain in six months, after rising 2.1% in June.

The three-month core inflation rate jumped 2.8%, the most in eight years, supporting the view that weak inflation readings earlier in the year were caused by transitory factors.

Between inflation vs growth, according to Reuters’s article dated 2019-08-13 “US Inflation picking up; Fed rate cut still expected”:

U.S. consumer prices increased broadly in July, but the signs of an acceleration in inflation will likely do little to change market expectations that the Federal Reserve will cut interest rates again next month amid worsening trade tensions.

Former Fed Chairwoman Janet Yellen said Wednesday that the odds of a recession have risen and are “higher than I’m frankly comfortable with.

Michael Gapen, chief U.S. economist at Barclays said the U.S. August payrolls and unemployment report, to be released on Sept. 6, will be an important gauge of whether the rate cut will be a quarter or a half percentage point.

According to MarketWatch’s article dated 2019-08-14 “Fed not on red-alert after yield-curve inversion”:

Right now, the market is pricing in 34 basis points of cuts in September.

So, the market is “betting” that as recession is near, the Fed would likely cut its rate to support the economy even though inflation were to pick up.

 

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