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Home>UPDATE: Looking for a cheap loan? Watch this inflation number to see where rates go next

UPDATE: Looking for a cheap loan? Watch this inflation number to see where rates go next

UPDATE: Looking for a cheap loan? Watch this inflation number to see where rates go next

09/23/2017

By Jeffry Bartash, MarketWatch

Fed still aims to raise interest rates despite 'mystery' of low inflation

If you're home buyer looking at the cost of a mortgage or a small business owner who may need a loan, there's one number you need to watch like a hawk. It could determine when and how fast borrowing costs rise.

The Federal Reserve is set to raise a key short-term U.S. interest rate once more in 2017 (http://www.marketwatch.com/story/still-on-course-fed-signals-one-more-rate-hike-in-2017-2017-09-20)and at least three times in 2018. How quickly the Fed moves will depend on how much the central bank's preferred measure of inflation increases. The index is known as the PCE.

More specifically, the Fed monitors a version of the PCE that omits gas and food, two household staples whose costs sometimes soar or sink in ways that exaggerate the true level of inflation.

The so-called core rate of PCE inflation (https://fred.stlouisfed.org/series/PCEPILFE#0) has mostly remained well under 2% -- the Fed's target -- since the end of 2009 despite longstanding predictions by the central bank that it would rise.

(http://projects.marketwatch.com/economic-data/?series=PCEPILFE_pc1&theme=white&hed=Core+PCE+price+index&dek=Change+from+previous+year%2C+seasonally+adjusted&source=Commerce+Department+via+FRED&source_link=http%3A%2F%2Fwww.bea.gov%2Fnewsreleases%2Frels.htm&drad=on&start=2012-09-01&end=2017-09-01&predictions=none)

Well, rise it did in early 2017. The core rate of inflation judged over a 12-month span matched a five-year high of 1.9% early in the year before, at least in the eyes of the Fed, falling inexplicably to the current rate of 1.4%. Oops.

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