The Fed’s inflation target of 2.0% is getting closer. The long-held Fed policy considers inflation one of the key data points when evaluating when to raise the Fed Funds rate or to leave it alone. 

real estate investing

We’re very nearly there. Today the Labor Department reported the Consumer Price Index rose 0.2% last month after bumping upward by the same amount in May. That’s four straight months of price increases on the retail level. A 0.2% monthly increase results in a 2.3% year over year rate, very near the Fed target. So far, the past 12 months show CPI at 1.6%. According to the data, the 2.2% year over year CPI is higher than any year over the past decade.

The Fed last raised interest rates in December of last year and while many expected one or perhaps even two such moves in 2016 so far the Fed has stayed on the sidelines as the economy struggles to gain footing. The Brexit move caused the Dow to shed nearly 1,000 points over the course of a few days but has since recovered. Economic uncertainty here and abroad drives investors to the safety of bonds and rates recently hit a three-year low and the 10-year Treasury yield hit a record bottom this past week. Yet even as the core CPI gradually moves up and with four straight months of price increases not very many investors think the Fed will move this year and expect a rate increase sometime early next year. The core CPI is close to Fed target but even if we do approach an annualized CPI number of 2.0% there are thoughts the Fed would still hold back until, or if, the economic dust settles both here and overseas.