The recent stock market selloff in early February was attributed to the CPI data released on February 2nd. The Federal Reserve Act establishes the statutory objectives for the Federal Reserve – maximum employment, stable prices, and moderate long-term interest rates. The Fed has been maintaining a low interest rate policy and has been powerless to normalize interest rate policy due to continued low inflation readings.
The most recent CPI All Urban Consumer reading come in at +2.1% for January 2018 over January 2017. This has been the first reading of plus 2% in six years and thus the stated 2% Fed inflation target has finally been reached. It’s worth keeping an eye on, but it’s unlikely to see the Fed adjust their policy of normalization based on a single reading of plus 2%. Most analyst still expect the Fed to raise the fed funds rate 2-3 times in 2018. Even more importantly, this reading should remind us all that inflation is one of the major risks in retirement planning and should not be neglected even after a long period of lackluster inflation readings.
Sources: Federal Reserve