Low and slow inflation, stoked by the Fed’s accommodative monetary policy, has braised the U.S. economy since the end of the financial crisis. Moderate inflation is traditionally viewed by some as a sign of economic strength. As companies earn more and expand, they hire more employees who ultimately take home their pay and spend it. However, some see the added cash in the system only serving to drive prices up.
Little impact: Core CPI has stayed below the Fed’s target since the start of 2017. The Fed opted to raise rates regardless, with only its late 2015 hike having any impact on inflation. Ten-year government rates have only recently risen.
Steady growth: Corporate earnings growth has dispelled concerns that higher borrowing costs would negatively hurt profits. The 2017 tax law could keep earnings high despite higher wage expense.
Slow rise: While unemployment levels are at historic lows, wage growth has been slow to improve in the post-crisis years. Wage growth improved after unemployment fell below 5%.
Saving shrinks: While personal income is growing, savings rates are rapidly declining. Higher interest rates can encourage savings if there is enough left to save.