One of the Federal Reserve Bank economists yesterday made a statement that by the end of 2016, the probability of low inflation is double the probability of high inflation. Where the Fed has switched their emphasis from employment to inflation this last month, this statement by the San Francisco Senior Economist has people talking. And when we are talking about interest rates, it’s important to underline that inflation leads to higher interest rates. Inversely, if inflation is nonexistent, interest rate stay low.
One of the measures of inflation is the Producer Price Index, which measures inflation at the wholesale level. Today’s reading of the PPI only rose by 0.2%, or 1.5% year-over-year. The Fed’s current target is 2.0-2.5%, so Mr. Senior Economist’s statement is timely. More measures of inflation roll out almost every day; the monthly Consumer Price Index will be released tomorrow.
As an indicator of the impact that this economist might have on the financial world (or not), these photos are the only ones that Google could find for him (and the photo on the right might actually just be a woman who looked like him in high school). His name is Vasco Curdia.