The latest outlook from the San Francisco Fed is less than rosy. And they are certainly not worried about inflation any time soon despite continuous fear mongering from the inflationistas. They are currently forecasting sub 1% PCE inflation over the coming few years due to very weak macro trends:
“With enormous slack in labor markets, wage pressures have been low. Compensation per hour, a broad but relatively volatile measure, registered growth of only 1% in the second quarter from a year earlier. Growth in the employment cost index, which includes health and other benefit costs, but excludes bonuses, also remains subdued relative to history. By any of these measures, business labor costs haven’t been growing rapidly.
We expect the high degree of resource slack to cause core inflation to moderate even more in the near term. Overall inflation will run somewhat above the core level in the next few quarters, given recent movements in oil prices.
The modest pace of recovery combined with low inflation has put downward pressure on interest rates in recent months. Nominal mortgage rates, for example, are at or near record lows. Fed funds futures rates for the next year are as flat as a pancake. Markets don’t expect the Federal Reserve to raise its target rate anytime soon.”
Source: SF Fed
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.