The Fed and Inflation

As expected, the Federal Reserve raised its benchmark interest rate 25 basis points yesterday – only the second hike in a decade – and indicated it might put in three more 25-basis-point hikes in 2017. The Fed signaled confidence in the economy’s growth prospects, although its long-term outlook is still for GDP growth around 1.8 percent over the next several years.

The Fed also said it does not expect inflation to reach its 2 percent target until 2018. Numbers released this morning supported that; the Labor Department said its Consumer Price Index rose 0.2 percent last month, after rising 0.4 percent in October.

In the 12 months through November, the CPI increased 1.7 percent. The so-called core CPI, which strips out food and energy costs, rose 0.2 percent last month after edging up 0.1 percent in October.