Fed officials seem to be realising that inflation below the central bank's 2 per cent target will not be "temporary" as policymakers first predicted. This means that any reason to raise interest rates no longer exists.
In a policy statement in July, the Fed said headline inflation and inflation excluding food and energy prices were now below 2 per cent on a 12-month basis, Zhitong Financial APP learned.
In recent speeches, policymakers have sent a similar silent signal. Ms Yellen recently told lawmakers that the decline in inflation was "something we pay close attention to".
In a conversation in Mexico, Robert Kaplan, the chairman of the Dallas Fed, was more cautious. "in these times of conflicting signals, the best thing to do is to be patient," he said. I just want to wait, re-examine more information, see how the economy is developing, and see if there are signs that we are moving towards the 2% inflation target. "
Notably, the Fed announced that it would shrink the table "as soon as possible", and investors expect the Fed to start shrinking at its September meeting. It also means that the Fed may raise interest rates at its December meeting. Officials will also have time to assess the rate of inflation between now and then.
The September meeting was accompanied by a press conference, but the balance sheet decision is expected to take up "all the oxygen" at the meeting, so no one expects interest rates to rise again in September.
"if inflation remains well below target, it will be difficult for the Fed to continue to raise interest rates," said Greg McBride, chief financial analyst at Bankrate.com, a consumer financial services website. Within the Fed, there is growing concern about continued growth of less than 2 per cent. "
"inflation has deviated from their target and is unlikely to accelerate unless bank lending and money supply growth is reversed," said Aaron Anderson, senior vice president of Fisher Investments. Although these two situations have risen recently, they are not enough to push up the inflation rate. "
If the backdrop of economic growth and inflation is so bleak, why do stock prices keep hitting record highs? McBride believes that the stock market has a long history, while he is more inclined to focus on government bonds, and long-term low yields have hinted that the US economy will be weak for a long time.
David Kelly, chief global strategist at JPMorgan Chase & Co, thinks that the rate hike may be postponed, but still bet that it will raise interest rates again this year. One of the reasons is the weakening of the dollar, which is down 8 per cent so far this year. I think they will raise interest rates in December. They just don't want to say that the depreciation of the dollar is one of the reasons they feel at ease because they don't want to encourage exchange rate volatility. "