A portfolio manager offers his outlook for inflation in the U.S., for both the short and long term.
Wesley Phoa: I think it’s reasonable to expect a short-term bounce in inflation, but over the longer term we should expect it to settle down at a rate that’s pretty modest compared to what folk have been used to over the past couple of decades.
The Fed has said that it has an inflation target of around 2% — that that’s a symmetrical target which they can overshoot sometimes, undershoot sometimes, but they’d like to average around there.
Now the reality is, right now, that looking through the day-to-day, month-to-month bouncing around of energy prices, there has been a downward shock to inflation — which I think will be quite persistent — which the Fed cannot really do anything about, except to just wait until it dissipates. Inflation — core inflation, just excluding food and energy prices — is running pretty tame right now. It’s running pretty tame for structural reasons in the economy that are going to take some time to work through. I think we could expect that to persist for a few more years. It’s not something to be all that concerned about, but it might be quite some time before we see inflation sustainably averaging around that 2% target.
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