The unemployment rate has fallen to near-record levels, yet inflation has not moved up. In fact, inflation has stayed below the Fed's target rate of 2 percent for the past few years.
This has forced the Fed to rethink the relationship between employment and inflation. Historically, the inflation rate has trended downward since the early 1980's. There are many reasons for this, most notably global trade, the rise of the internet and consumers having lower expectations of future upward pressure on inflation.
As a result, the Fed has been lowering its view of the overnight lending rate. Ever since the Fed started to forecast that rate back in 2012, it has been reduced from 4.25 percent to 2.75 percent.
What does all this tell us? It is likely that the Fed is getting closer to ending its fiscal tightening program earlier than previously expected.
The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them.
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