With the advent of the New Year, many economists have slashed the inflation forecasts for 2015, especially on the signs of tumbling oil prices. But the only thing that has not changed is the predictions that the Federal Reserve Bank will increase its benchmark interest rate, likely around mid-year.
Michael Gapen, an economist at Barclays Plc in New York, “We’re still saying June with risks to September. The Fed can push rates higher in the middle of the year, even though visually that may look awkward if headline inflation is around zero.”
According to the analysts, slowing global growth, a strengthening dollar and cheaper oil are together holding down the costs for goods like autos and televisions. But the policy makers at Federal Reserve are expected to look past that and see a recovering and improving labor market that is forcing the employers to offer higher wages to the employees. These costs will further boost the price of things like restaurant meals and rent, regardless of what is happening in the overseas economy. All these circumstances will together offer the central bank room to hike interest rates that have been maintained near zero for six years.
The personal consumption expenditure (PCE) price index which is the preferred measure of the Federal Reserve will be up 0.5 percent in the second quarter of this year from the same time in 2014, according to the projections of the Barclays economists on December 19. This is a decline from an earlier forecast of 1.2 percent. Another gauge consumer-price index is projected to show a small drop in the 12 months through June.
The main motive of the US central bank is for PCE inflation to climb about two percent per year.