MAY 14, 2018 – INFLATION REMAINS LOW, BUT THE FED IS HOLDING THE COURSE
Core inflation for April was reported at 2.1 percent year-over-year last week, up 0.2 percent, slightly short of expectations for a 0.3 percent rise. This time last year, core inflation was around 1.7 percent; the worry that prices are falling rather than rising, is unfounded. In fact, the six-month annualized inflation rate is 2.6 percent.
If inflation continues to move up relatively slowly, why is the Fed still committed to two to three additional rate increases this year? It’s speculated the Fed is worried about future inflation taking off, and they do not want to be caught unaware. The last time the unemployment rate was at its current level of 3.9 percent, inflation was running close to 6 percent, and the Fed doesn’t want that to happen again.
With policy makers confident inflation is firming up, the Fed’s official communique notes that headline and core inflation has “moved close to 2 percent.” We urge you to act now to hedge against the expected upcoming rate hikes; swaps can serve as good tools to save you interest payments in the future.